Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $160,000 are payable at the beginning of each year. Each is a finance lease for the lessee. (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.) Situation 1 2 3 4 Lease term (years) 9 9 10 10 Lessor's and lessee's interest rate 9% 11% 10% 12% Residual value: Estimated fair value 0 $62,000 $9,200 $62,000 Guaranteed by lessee 0 0 $9,200 $72,000 Determine the following amounts at the beginning of the lease (Round your intermediate and final answer to the nearest whole dollar amount.):

Answer 1

ANSWER

Situation		1	2	3	4
Lease term (years)		9	9	10	10
Lessor’s rate of return		9%	11%	10%	12%
Fair value of leased asset	A	0	62000	9200	62000
Lessor’s cost of leased asset		0	62000	9200	62000
Residual value:
Guaranteed by lessee		0	0	9200	72,000
Unguaranteed		0	0	0	0
PVAD $1	B	6.53482	6.14612	6.75902	3.40183
PV $1	C	0.46	0.391	0.386	0.636
Amount to be recovered(fair value)		0	62000	9200	62000
Less: Present value of the residual value		0	0	3551.2	45792
Amount to be recovered through periodic lease payments	D=C*A	0	62000	5648.8	16208
Lease payments at beginning	D/B	$ 0	$ 10,088	$ 836	$ 4,764

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