Explore BrainMass

Explore BrainMass

    Implied Interest Rates on Leases

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Elston Company has entered into two lease agreements. In each case the cash equivalent purchase price of the asset acquired is known and you wish to find the interest rate which is applicable to the lease payment.

    Instructions: Calculate the implied interest rate for the lease payments.

    Lease A
    Lease A covers office equipment which could be purchased for $59,008. Elston Company has, however, chosen to lease the equipment for $12,000 per year, payable at the end of each of the next 6 years.

    Lease B
    Lease B applies to a machine which can be purchased for $34,868. Elston Company has chosen to lease the machine for $10,000 per year on a 4-year lease. Payments are due at the start of each year.

    © BrainMass Inc. brainmass.com June 4, 2020, 2:00 am ad1c9bdddf
    https://brainmass.com/business/interest-rates/implied-interest-rates-leases-431706

    Solution Summary

    This solution illustrates how to compute the implied interest rates on leases.

    $2.19

    ADVERTISEMENT