Rabbit Inc.has an asset with a fair market value of $450,000 that it wants to lease.Rabbit's wants to recover its net investment in the leased asset and earn an 8%.The asset will revert back to Rabbit's at the end of a 5-year lease term and it is expected that the residual value of the asset will be $20,000 at the end of the lease.If Rabbit wants to charge rent semi-annually starting at the beginning of the lease, what amount should the lease payments be (rounded to whole dollars)?

Question

Quizplus · Accepted Answer

The correct answer is A. $60,817.The net investment in the leased asset is $450,000 - $20,000 = $430,000. The semi-annual interest payment is $430,000 x 8% / 2 = $17,200. The semi-annual depreciation payment is $430,000 / 10 = $43,000. The total semi-annual lease payment is $17,200 + $43,000 = $60,200.