Question

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 eight-year lease of equipment with a fair value of $961,930. The present value of an annuity due of $1 at 8% for eight years is 6.206. What is the total amount of interest revenue that Jagadison will earn over the life of the lease

Answer 1

$278,070

Step-by-step explanation:

we must first calculate the annual payments:

annual lease payment = $961,930 / 6.206 = $155,000

Jagadison will receive a total of $155,000 x 8 annual lease payments = $1,240,000

total interest revenue = total lease payments - present value of the equipment = $1,240,000 - $961,930 = $278,070