Question

Glade Co. leases computer equipment to customers under direct-financing leases. The equipment has no residual value...

Glade Co. leases computer equipment to customers under direct-financing leases. The equipment has no
residual value at the end of the lease 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.

compute the total amount of interest revenue that Glade will earn over the life of the lease.

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Answer #1
Interest revenue over the life of the lease $      51,774.01

Working:

Fair value of Equipment

 $   3,23,400.00
Divide by PV factor 4.31
Annual lease payments
(323400/4.31)		 $      75,034.80
Total Annual lease payments
(75034.80*5)		 $   3,75,174.01
Less: Fair value of Equipment $   3,23,400.00
Interest revenue over the life of the lease $      51,774.01
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