Question

Haystack, Inc. manufactures machinery used in the mining industry. On January 2, 2018 it leased equipment with a cost of $480,000 to Silver Point Co. The 5-year lease calls for a 10% down payment and equal annual payments at the end of each year. The equipment has an expected useful life of 5 years. If the selling price of the equipment is $780,000, and the rate implicit in the lease is 8%, what are the equal annual payments?

Answer 1

Answer:

equal annual payment = $175820.87

Explanation:

given data

equipment cost = $480,000

time = 5 year

down payment = 10 %

selling price equipment = $780,000

rate implicit  lease = 8%

to find out

what are the equal annual payments

solution

we get here first down payment that is

down payment = 10% of $780,000

down payment = $78000

and

lease liability at inception = $780,000 -$78000

lease liability at inception = $702,000

now we get equal annual payment that find by dividing by lease liability by present value interest factor

here present value interest factor is for 8% and 5 year is = 3.9927

so equal annual payment = $\frac{702,000}{3.9927}$

equal annual payment = $175820.87