XYZ Rental leased a special crane to ABC INC.that originally cost $40,000.The lease was for six years and the rentals were $10,000 per year, payable at each year-end.The implicit interest rate was 10 percent.XYZ Rental recognized a gross margin (dealer's profit)of (rounded to nearest dollar):

Question

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The gross margin (dealer's profit) can be calculated by subtracting the present value of the lease payments from the original cost of the crane. The present value of the lease payments, using the implicit interest rate of 10%, can be calculated using the formula for the present value of an annuity: PV = P * [(1 - (1 + r)^-n) / r], where P is the payment amount, r is the interest rate per period, and n is the number of periods. Here, P = $10,000, r = 0.10, and n = 6. Thus, PV = $10,000 * [(1 - (1 + 0.10)^-6) / 0.10] ≈ $40,000 - $36,447 = $3,553.

XYZ Rental Leased a Special Crane to ABC INC