On January 1, Smith Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to Smith. The equipment cost Smith $350,000 and has an expected useful life of six years. Its normal sales price is $350,000. The residual value after four years is $50,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 5%. Calculate the amount of the annual lease payments. (Round your answer to the nearest whole dollar amount.) The present value of $1: n = 4, i = 5% is 0.82270.
The present value of an ordinary annuity of $1: n = 4, i = 5% is 3.54595.
The present value of an annuity due of $1: n = 4, i = 5% is 3.72325.

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11ea937b_35e6_3115_a419_f3461f9a3d33_TB2599_00 * present value of $1: n=4, i=5%
** present value of an ordinary annuity of $1: n=4, i=5%
When the lessor gets a lease asset back at the end of the lease term, the value of the asset itself, which at the beginning of the lease is estimated as the residual value, will provide another source of recovery of the lessor's investment. That reduces the amount needed from lessee payments.

On January 1, Smith Industries Leased Equipment to a Customer