Question
What is the formula to calculate annual rental payments on a sales-type lease? I was given the following information, I'm just not sure how to
What is the formula to calculate annual rental payments on a sales-type lease?
I was given the following information, I'm just not sure how to use it to calculate the annual payment amount:
1.The term of the noncancelable lease is 12 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2.Equal rental payments are due on January 1 of each year, beginning in 2018.
3.The fair value of the equipment on January 1, 2018, is $247,500, and its cost is $198,000.
4.The equipment has an economic life of 16 years. Hinton depreciates all of its equipment on a straight-line basis.
5.Capital set the annual rental to ensure a 6% rate of return. Hinton's incremental borrowing rate is 4%, and the implicit rate of the lessor is unknown.
6.Collectability of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started