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Firm X buys equipment for $9,000 and leases the equipment to firm A for $800 a...

Firm X buys equipment for $9,000 and leases the equipment to firm A for $800 a year for five years. After five years, firm X expects to sell the asset for $10,000. What is the return that firm X earns on the lease? PLEASE PROVIDE INPUTS AND WHAT TO SOLVE FOR IN THE FINANCIAL CALCULATOR DO NOT NEED FORMULAS

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Answer #1

Cost of Equipment = $9,000
Annual Lease Payment = $800
Salvage Value = $10,000
Useful Life = 5 years

We need to calculate the rate of return that Firm X earns on the lease.

Using financial calculator:
N = 5
PV = -9000
PMT = 800
FV = 10000

I = 10.68%

So, Firm X earns a rate of return of 10.68% on the lease.

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