Question

Jansen Company leased a machine with a cost and fair value of $250,000 to Naylor Company. The machine will have no residual value at the end of the 6-year lease. What will the six beginning-of-the-year lease payments be if the lessor’s implicit interest rate is 12%?

Answer 1

$54,291.45

Step-by-step explanation:

Given:

Present value = $250,000

Duration, n = 6 years

Rate, r = 12%

Now,

`\textup{Present value}=\textup{Annuity}*([(1-(1+r)^(-n))/(r)]*(1+r))`

on substituting the respective values, we get

`\textup{250,000}=\textup{Annuity}*([(1-(1+0.12)^(-6))/(0.12)]*(1+0.12))`

or

`\textup{Annuity}=(250,000)/(4.6047)`

or

Annuity = $54,291.45