Jagadison Co. leases computer equipment to customers under sales-type leases. The equipment has no residual value at the end of the lease and the leases do not contain purchase options. Jagadison desires a return of 8% interest on a five-year lease of equipment with a fair value of $970,425. The present value of an annuity due of $1 at 8% for five years is 4.313. What is the total amount of interest revenue that Jagadison will earn over the life of the lease?
A) $154,575
B) $225,000
C) $388,080
D) $418,350

Question

Quizplus · Accepted Answer

Annual payments = $970,425 / 4.313
Annual payments = $225,000
$225,000 × 5 payments = $1,125,000
$1,125,000 - 970,425 = $154,575