Jenny bought a rental property for $900,000 and leased it for 3 years. Rents will be...

Jenny bought a rental property for $900,000 and leased it for 3 years. Rents will be paid at the beginning of each month and the residual value after 3 years will be $700,000. To earn 8% rate of return per year on this lease, how much rent/month should be charged?

Instructions: use the Compound interest tables to solve

-Future value of 1 (future value of a single sum)

-Present value of 1 (present value of a single sum)

-Future value of an ordinary annuity of 1

-Present value of an ordinary annuity of 1

-Present value of an annuity Due of 1

Solutions

Expert Solution

Calculation of monthly lease rental	Amount $
Fair value of asset		$ 900,000
Add: Initial direct cost
	a	$ 900,000
Less: Present value of guaranteed residual value	$ -
Less: Present value of unguaranteed residual value	$ (551,078)	($700,000*0.78725)
	b	$ 348,922
Annuity factor for implicit rate	c	32.12455	(8%/12 month=0.666667% monthly factor)
Lease rent per month	d=b/c	$ 10,862	($348,922/32.12455)

ekkarill92 answered 1 year ago

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