Question

Konverse Inc. is negotiating an agreement to lease equipment to a lessee for 6 years. The fair value of the equipment is $80,000 and the lessor expects a rate of return of 7% on the lease contract and no residual value. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Konverse Inc. charge in order to earn its expected rate of return on the contract?
Note: Round your answer to two decimal places.
Note: Do not use a negative sign with your answer.

Lease payment
Answer

Answer 1

It is given that first Lease Payment at the beginning.
It is assumed that from 2nd lease payment, payment shall be made at the end of the year
Fair Value = Present Value of Annual Lease Payment @ Expected Rate
Given Fair Value	$ 80,000.00
PV Annuity Factor @ 7%
Year	PV Factor @ 7%
0	1.000
2	0.873
3	0.816
4	0.763
5	0.713
6	0.666
PV Factor	4.832
Annual Lease Payment	= Fair Value / PV Annuity Factor @ 7%
		$ 16,556.29	+$80000/4.832
fixed lease payment should Konverse Inc. charge in order to earn its expected rate of return on the contract is $16556