Rabbit Inc. has an asset with a fair market value of $450,000 that it wants to l
ID: 2550786 • Letter: R
Question
Rabbit Inc. has an asset with a fair market value of $450,000 that it wants to lease. Rabbit’s wants to recover its net investment in the leased asset and earn an 8%. The asset will revert back to Rabbit’s at the end of a 5-year lease term and it is expected that the residual value of the asset will be $20,000 at the end of the lease. If Rabbit wants to charge rent semi-annually starting at the beginning of the lease, what amount should the lease payments be (rounded to whole dollars)?A) $62,096
B) $104,367
C) $101,200
D) $60,817
Rabbit Inc. has an asset with a fair market value of $450,000 that it wants to lease. Rabbit’s wants to recover its net investment in the leased asset and earn an 8%. The asset will revert back to Rabbit’s at the end of a 5-year lease term and it is expected that the residual value of the asset will be $20,000 at the end of the lease. If Rabbit wants to charge rent semi-annually starting at the beginning of the lease, what amount should the lease payments be (rounded to whole dollars)?
A) $62,096
B) $104,367
C) $101,200
D) $60,817
Rabbit Inc. has an asset with a fair market value of $450,000 that it wants to lease. Rabbit’s wants to recover its net investment in the leased asset and earn an 8%. The asset will revert back to Rabbit’s at the end of a 5-year lease term and it is expected that the residual value of the asset will be $20,000 at the end of the lease. If Rabbit wants to charge rent semi-annually starting at the beginning of the lease, what amount should the lease payments be (rounded to whole dollars)?
A) $62,096
B) $104,367
C) $101,200
D) $60,817
Explanation / Answer
A.) $62096
Present value equation is enough to solve this.
Present value is equal to sum of pv of installment and pv of salvage
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