XYZ agreed to lease an industrial machine that cost $108,000 to RST for six years.The lease was a direct financing lease and a 12 percent interest rate was used to calculate the annual lease payments, which were payable at the end of each year.The amount of each annual rental was:

Question

Quizplus · Accepted Answer

The annual lease payment can be calculated using the formula for an annuity payment: P = [r*PV] / [1 - (1 + r)^-n], where P is the payment, r is the interest rate per period, PV is the present value of the lease (cost of the machine), and n is the number of periods. Here, r = 12% or 0.12, PV = $108,000, and n = 6 years. Plugging these values into the formula gives the annual rental amount, which matches option D, $26,268.

XYZ Agreed to Lease an Industrial Machine That Cost $108,000