Lessor leases a building to Lessee for 4 years starting January 1, 20A. Both the cost to Lessor and the selling price are $50,000. There will be four lease payments, with the first one starting immediately on January 1, 20A. The building has a 4-year life with no salvage value. Lessor’s target rate of return is 10%. I’m trying to work out the annual lease payment. The answer they provided is 50,000/3.4868=14,339.00 They got the 3.4868 by saying PV annuity due, 10%, 4 periods need help here as i’m not sure how they got 3.4868 from the above inputs? Thanks
TI II A Plus 2nd Begin I/Y=10 N=4 PV=-1 CPT PMT = .28679164 1/PMT = 3.4868
Thanks CP, Confirmation needed on the following: Is the Lessor’s selling price always equal to the PV of the lessee’s Lease payments? And… Is there perhaps another way to work out lease payments, because i’m alittle confused with why you would divide 1 by PMT? Thanks
So you do not really need to multiply by 1/PMT with a 1 PV -- your PMT = .28679164 So with a 50000 PV – your PMT = .28679164 * 50000 = 14339. If you instead did PV = -50000 Then CPT PMT --> you would get 14339 directly.
Alright, Thanks CP!!