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zade
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| Posted: 25 Jun 2009 at 09:59 | IP Logged
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Hi everyone, I'm having a hard time with Chapter 5 (Becker) and I was wondering if someone could please explain the answer to this question:
Glade co leases computer equipment to customers under direct-financing leases. The equipment has no residual value at the end of the lease and the leases do not contain bargain options. Glade wishes to earn 8% interest on a five-year lease of equipment with a fair value of $323,400. The present value of an annuity due of $1 at 8% for five years is 4.312. What is the total amount of interest revenue that Glade will earn over the life of the lease?
a. 51,600
b. 75,000
c. 129,360
d. 139,450
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Payal123
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| Posted: 25 Jun 2009 at 10:08 | IP Logged
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Hi Zade,
Is the correct answer "a"?
This is what i understand.
The Fair value of the equipment = $323,400
This fair value is considered as its present value.
Present Value = 4.312 * Annual Lease Payments
323400 = 4.312 * Annual Lease payments
therefore, Annual Lease payments = 75,000
Lease is for 5 yrs. So 75,000 * 5 = 375,000
Interest portion = 375,000 - 323,400 = $51,600
I hope this is the right answer. Good Luck!
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zade
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| Posted: 25 Jun 2009 at 10:19 | IP Logged
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The correct answer is b -- $75000, I just dont understand why/how
__________________
BEC 2/06 Scored R'd 02/14 86
REG 04/06/09 r'd 05/23/09 93!
AUD 05/07/09 R'd 06/19/09 92!
FAR 07/08/09 r'd 08/20.09 91!
Ethics..passed!
I am now free to have a life
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Payal123
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| Posted: 25 Jun 2009 at 10:25 | IP Logged
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hey zade,
which edition are you using?
Coz i was also shocked to know that the correct answer is 'b'
I just checked my Becker 2009 edition & selected $51,600 as the correct answer & it said its the right answer.
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zade
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| Posted: 25 Jun 2009 at 10:28 | IP Logged
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Hi Payal,
I'm sorry that was my mistake, you're correct. Thanks for your explanation!!
__________________
BEC 2/06 Scored R'd 02/14 86
REG 04/06/09 r'd 05/23/09 93!
AUD 05/07/09 R'd 06/19/09 92!
FAR 07/08/09 r'd 08/20.09 91!
Ethics..passed!
I am now free to have a life
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Topic: Lease Questions
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