ABC INC.entered into a direct financing lease with QRS to rent a machine that cost $157,895.The lease term was for six years.The annual rentals are payable at the beginning of each year,and ABC INC.expects to earn a 14 percent rate of return.The required amount of the annual rentals is (rounded to the nearest dollar):

Question

Quizplus · Accepted Answer

The annual rental payment can be calculated using the formula for the present value of an annuity due, where the present value is the cost of the machine ($157,895), the rate is 14%, and the term is 6 years. Solving for the annual payment gives approximately $40,604.

ABC INCEntered into a Direct Financing Lease with QRS to Rent