Question

In: Accounting

Tiner Leasing Company purchased specialized equipment from Fred Company on December 31, 2019 for $800,000. On...

Tiner Leasing Company purchased specialized equipment from Fred

Company on December 31, 2019 for $800,000. On the same date, it leased this equipment to Tears Company for 6 years, the useful life of the equipment. The lease payments begin January 1, 2020 and are made every 6 months. Tiner Leasing wants to earn 9% annually on its investment.

  

   (a) Calculate the amount of each rent. $ __________

   (b) How much interest revenue will Tiner earn in 2020? $ __________

Solutions

Expert Solution

The Amount of each rent = $87,732.95

Interest revenue in the year 2020 (i.e.for first 2 periods) = $36000+$33672=$69,672

(Explanation to the answer is given below)

Period Payment Principal Part Interest Part Balance
1 $87,732.95 $ 51,732.95 $ 36,000.00 $748,267.05
2 $87,732.95 $ 54,060.93 $ 33,672.02 $694,206.12
3 $87,732.95 $ 56,493.67 $ 31,239.28 $637,712.45
4 $87,732.95 $ 59,035.89 $ 28,697.06 $578,676.56
5 $87,732.95 $ 61,692.51 $ 26,040.44 $516,984.05
6 $87,732.95 $ 64,468.67 $ 23,264.28 $452,515.38
7 $87,732.95 $ 67,363.76 $ 20,369.19 $385,145.62
8 $87,732.95 $ 70,401.40 $ 17,331.55 $314,744.22
9 $87,732.95 $ 73,569.46 $ 14,163.49 $241,174.76
10 $87,732.95 $ 76,880.09 $ 10,852.86 $164,294.67
11 $87,732.95 $ 80,339.69 $    7,393.26 $83,954.98
12 $87,732.95 $ 83,954.98 $    3,777.97 ($0.00)

The monthly payment is derived by using the formula EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

=>EMI= 800000*4.5%*((1+4.5%)^12)/((1+4.5%)^12-1)

=>$87,732.95

ekkarill92 answered 10 months ago
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