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Mequon Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $47,000, and Mequon expects the machinery to have a residual value at the end of the lease term of $30,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $45,000 instead of $30,000.What would be the amount of the annual rental payments Mequon demands of Thiensville, assuming each payment will be made at the end of each year and Mequon wishes to earn a rate of return on the lease of 6%?

Respuesta :

Capricious23

Answer:

The amount of annual rental payment = $4,906.205 per annum

Explanation:

Amount of lease payment that Mequon Inc must demand for earning 6% rate of return i.e discounting factor:

[tex]\frac{1}{1.06} + \frac{1}{1.06^{2} } + \frac{1}{1.06^{3} } + \frac{1}{1.06^{4} }[/tex]

=3.465

Amount that will be paid per year:

[(Value of machinery-resifual value at the end of 4 yers expected by Mequon)/discounting factor for 4 years at 6%]

=($47,000-$30,000)/3.465

=$4,906.205(approx.) per annum.

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