Question

On January 2, 2018, Universal Co. leased a delivery truck from Blue Sky Leasing Company. Blue...

On January 2, 2018, Universal Co. leased a delivery truck from Blue Sky Leasing Company. Blue Sky paid $68,000 for the truck. Its retail value is $70,843. The lease agreement specified annual payments beginning on January 2, 2018, the beginning of the lease, and at each December 31 through 2024. Blue Sky’s interest rate for determining payments was 6%. At the end of the eight-year lease term (December 31, 2025) the truck was expected to be worth $8,000. Universal guaranteed a residual value of $5,000. The amount of annual lease payments determined by Blue Sky would be:

a. $10,000
b. $11,000
c. $12,000
d. $13,000

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Answer #1

ANSWER = A) $10,000

Let annual lease payments = X

Truck value = X * PVF (6%, 7years) + X * PVF (6%, 0 year) + 8000 * PVF (6%, 7th year)

70843 = X* 5.5823 + X*1 + 8000 * 0.6274

X = (70843 - 5019.30) / 6.55823

X = 10000

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