Question

On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leasedTABLE 1 Future Value of $1 FV = $1 (1 + i) n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 0.0% 11TABLE 2 Present Value of $1 PV = $1 (1 + i) 2.0% n/i 1.0% 1.5% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 0.0% 10.0% 1TABLE 3 Future Value of an Ordinary Annuity of $1 FVA - (1 + i) -1 n/i 1 2 3 4 5 1.0% 1.0000 2.0100 3.0301 4.0604 5.1010 1.5%TABLE 4 Present Value of an Ordinary Annuity of $1 1- (1 + i) PVA --- n/i 1 2 3 4 5 1.0% 1.5% 2.0% 0.99010 0.98522 0.98039 1.TABLE 5 Future Value of an Annuity Due of $1 FVAD = |(1 + i) – 1.*(1 + i) n/i 1 2 3 4 5 1.0% 1.0100 2.0301 3.0604 4.1010 5.1TABLE 6 Present Value of an Annuity Due of $1 PVAD = { 14+ jx (1 + i) n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6

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Answer #1
Guaranteed residual value
Table or calculator function: Present value of $1
n 4
i 7%
Present value
Amount to be recovered (Fair value) $900,000
Guaranteed residual value (300,000*0.76290) 228,870
Amount to be recovered through periodic lease payments 671,130
Lease payment
Table or calculator function: Present value of ordinary annuity of $1
n 4
i 7%
Lease payments
Amount of fair value recovered each lease payment (671,130 / 3.38721) $198,137
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