Jeremy Leasing purchases and then leases small aircraft to interested parties.The company is currently determining the required rental for a small aircraft that cost them $400,000.If the lease is for twenty years and annual lease payments are required to be made at the end of each year, what will be the annual rental if Jeremy wants to earn a return of 10%?

Question

Quizplus · Accepted Answer

To determine the annual rental, we need to calculate the annual lease payments using the formula:
Annual Rental = (Cost of asset - Salvage value) x (Rate of return/1 - (1 + Rate of return)^-n)
Where:
- Cost of asset = $400,000
- Salvage value = 0 (assumed)
- Rate of return = 10% = 0.10
- n = 20 years
Substituting the values, we get:
Annual Rental = ($400,000 - 0) x (0.10/1 - (1 + 0.10)^-20)
Annual Rental = $46,984 (rounded to the nearest dollar)
Therefore, the correct answer is B.

Jeremy Leasing Purchases and Then Leases Small Aircraft to Interested