Glade Company leases computer equipment to customers under direct financing leas

Question

Glade Company leases computer equipment to customers under direct financing leases. The equipment has no residual value at the end of the lease term, and the leases do not contain bargain purchase options. Glade wishes to earn 8% interest on a five-year lease of equipment with a fair value of $323,400. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Required: Compute the total amount of interest revenue that Glade will earn over the life of the lease. (Round your intermediate and final answers to 2 decimal places.)

Explanation / Answer

Present Value annuity will be as follow if it receives the installment at the end of the year Year PVIF@8% 0 1 1 0.925925926 2 0.85733882 3 0.793832241 4 0.735029853 5 0.680583197 Total annuity 3.992710037 This will equal 323400 So 5 will be 404988.09 annual installment will be 1 80997.617 It means it will earn Interest Revenue of =(404988.09-323400) 81588.09 Present Value annuity will be as follow if it receives the installment at the beginning of the year Year PVIF@8% 0 1 1 0.925925926 2 0.85733882 3 0.793832241 4 0.735029853 5 Total annuity 4.31212684 This will equal 323400 So 5 will be 374988.97 annual installment will be 1 74997.794 It means it will earn Interest Revenue of =(374988.97-323400) 51588.97 Both the above answer are correct as per assumption we make

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.