Question

Ace Leasing acquires equipment and leases it to customers under long-term sales-type leases. Ace earns interest under these arrangements at a 6% annual rate. Ace leased a machine it purchased for $620,000 under an arrangement that specified annual payments beginning at the commencement of the lease for five years. The lessee had the option to purchase the machine at the end of the lease term for $150,000 when it was expected to have a residual value of $180,000. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Calculate the amount of the annual lease payments.

Answer 1

The lease payment will be for $ 113,751.173 during 5 years beginning at the moment the lease is signed

Step-by-step explanation:

First, we discount the payment at the end of the lease

`(Maturity)/((1 + rate)^(time) ) = PV`

Maturity $150,000

time 5 years

rate 0.06

`(150000)/((1 + 0.06)^(5) ) = PV`

PV 112,088.7259

Now we subtract form the 620,000 to know the amount to be perceived form the lease payment:

620,000 - 112,089 = 507.911‬

Now we solve the PMT which makes the annuity-due of 5 payment at the beginning of the period:

`PV / (1-(1+r)^(-time) )/(rate) (1+r)= C\\`

PV $507,911.0000

time 5

rate 0.06

[tex ]507,911 \div \frac{1-(1+0.06)^{-5} }{0.06}(+0.06) = C\\[/tex]

C $ 113,751.173