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Determine and calculation of amount of lease payments

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Reference no: EM132472023

(Calculation of Amount of Lease Payments)

  • Your client, Danyleyko Leasing Com-pany, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 25 years. Danyleyko has an investment cost of $365,755 in the machine, which has a useful life of 25 years and no salvage value at the end of that time. Your client is interested in earning an 11% return on its investment and has agreed to accept 25 equal rental payments at the end of each of the next 25 years.

Instructions

Question a. You are requested to provide Danyleyko with the amount of each of the 25 rental payments that will yield an 11% return on investment. Show calculations using (a) factor Table A.4 in Appendix 01, (b) a financial calculator, or (c) Excel function PMT.

Question b. What valuation model is Danyleyko using in the measurement of this lease?

Question c. Besides the interest return on this investment, what other risk factors would Danyleyko have considered in pricing this transaction? Do these risks involve measurement uncertainty that needs disclosure in the financial statements?

Reference no: EM132472023

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