Question

Konverse Inc. is negotiating an agreement to lease equipment to a lessee for 6 years. The...

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

Homework Answers

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
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Konverse Inc. is negotiating an agreement to lease equipment to a lessee for 6 years. The...
Konverse Inc. is negotiating an agreement to lease equipment to a lessee for 6 years. The fair value of the equipment is $100,000 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?
Quest Inc. is negotiating an agreement to lease equipment to a lessee for 8 years. The...
Quest Inc. is negotiating an agreement to lease equipment to a lessee for 8 years. The equipment has a useful life of 10 years. The fair value of the equipment is $80,000 and the lessor expects a rate of return of 8% on the lease contract. The lessee guarantees a residual value of $20,000 at the end of the 8-year lease term. If the first annual payment is required at the end of the first year following the commencement of...
Quest Inc. is negotiating an agreement to lease equipment to a lessee for 8 years. The...
Quest Inc. is negotiating an agreement to lease equipment to a lessee for 8 years. The equipment has a useful life of 10 years. The fair value of the equipment is $80,000 and the lessor expects a rate of return of 8% on the lease contract. The lessee guarantees a residual value of $20,000 at the end of the 8-year lease term. If the first annual payment is required at the end of the first year following the commencement of...
Calculating Lessor Payment— Unguaranteed Residual Value Marshall Inc. is negotiating an agreement to lease equipment to...
Calculating Lessor Payment— Unguaranteed Residual Value Marshall Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The equipment has a useful life of 8 years. The fair value of the equipment is $40,000 and the lessor expects a rate of return of 5% on the lease contract. Marshall Inc. expects the equipment to have a fair value of $15,000 at the end of 5 years; however, the lessee does not guarantee the residual amount. If...
Eubank Company, as lessee, enters into a lease agreement on July 1, 2014, for equipment. The...
Eubank Company, as lessee, enters into a lease agreement on July 1, 2014, for equipment. The following data are relevant to the lease agreement: 1. The term of the non-cancelable lease is 4 years, with no renewal option. Payments of $782,757 are due on July 1 of each year. 2. The fair value of the equipment on July 1, 2014 is $2,800,000. The equipment has an economic life of 6 years with no salvage value. 3. Eubank amortize the right...
Please answer all a,b,c! Eubank Company, as lessee, enters into a capitalized lease agreement on January...
Please answer all a,b,c! Eubank Company, as lessee, enters into a capitalized lease agreement on January 1, 2018, for equipment. The following data are relevant to the lease agreement: The term of the non-cancelable lease is 4 years with no renewal option. Payments of $782,757 are made at the beginning of each year. The present value of the minimum lease payments equals $2,800,000. The fair value of the equipment on 1/1/18 is $2,800,000. The equipment has an economic life of...
On 1 July 20X1 Lessee Ltd leased some equipment from Lessor Ltd. The details of the...
On 1 July 20X1 Lessee Ltd leased some equipment from Lessor Ltd. The details of the lease arrangement are as follows: The lease term was for 4 years The interest rate implicit in the arrangement was 8% The lessee paid an amount of $20,000 per annum to the lessor commencing on 30 June 20X2 The residual value at the end of the lease term was $17,000 of this, an amount of $11,000 was guaranteed by the lessee $4,000 is the...
LSU Company signs an agreement on January 1, 2009, to lease equipment to Tiger Corporation. The...
LSU Company signs an agreement on January 1, 2009, to lease equipment to Tiger Corporation. The following information relates to this agreement: The term of the non cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. The cost of the asset to the lessor is $245,000. The fair value of the asset on January 1, 2009, is $245,000. The asset will revert to the lessor at the end of the...
On 1/1/A lessor leases Equipment to lessee for 3 years. The equipment has an estimated remaining...
On 1/1/A lessor leases Equipment to lessee for 3 years. The equipment has an estimated remaining useful life of 5 years, a fair value of $250k, and is on lessor's books at $200k. Payments are due at the beginning of each year. Lessor expects the equipment to be returned on 12/31/C with a residual fair value of $30k, but this amount is unguaranteed. Lessor's interest rate is 12%, which is known by lessee. What is lessor's lease inception entry on...
Lessor leasing company agrees to lease equipment to Lessee corp. on Jan 1, 2019, both Lessor...
Lessor leasing company agrees to lease equipment to Lessee corp. on Jan 1, 2019, both Lessor and Lessee follows IFRS. The following information relates to the lease agreement: 1- the lease term is 7 years, no renewal, 2- Lessor acquired the equipment this day Jan 1, 2019 for $560,000 cash, the useful life 10 years 3- at the end of the term the equipment to be returned to the lessor with guaranteed residual value of $40,000 4- the lease agreement...