| Ace Leasing acquires equipment and leases it to customers under long-term direct financing leases. Ace earns interest under these arrangements at a 6% annual rate. Ace leased a machine it purchased for $650,000 under an arrangement that specified annual payments beginning at the inception of the lease for six years. The lessee had the option to purchase the machine at the end of the lease term for $150,000 when it was expected to have a residual value of $210,000. (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.)
Calculate the amount of the annual lease payments. Amount to be recovered $_________ Bargain Purchase Option $_________ Amount to be recovered through periodic lease payments $______________ Lease Payment: Amount of fair value recovered each lease payment $_________ |
Amount to be recovered $_650,000__
Bargain Purchase Option $__105,744__
Amount to be recovered through periodic lease payments $_____544,526_________
Lease Payment:
Amount of fair value recovered each lease payment $ 110681.90
Working Notes for the above answer is as follow
Amount to be recovered = $ 650,000
Less :
Present Value of BPO Price (105,744)
(150,000 x 0.704961)
Present Value of $ 1, n = 6 i= 6 %
Amount Recovered Through Periodic Payment = $ 544,526
Lease payment at the beginning of each of Next 6 Year
= 544525/ 4.9173
=110681.90
Present Value of annuity Due Of $ 1, n = 6 i= 6 % = 4.9173
