Taylor's Tractor-Trailer Rigs Sell for $150,000

question 94

Essay

Taylor's tractor-trailer rigs sell for $150,000. A customer wishes to buy a rig on a lease purchase plan over seven years, with the first payment to be made at the inception of the lease. Interest is at 12%.
Required:
a. Compute the amount of the annual lease payment and the gross amount (total payments) due under the lease.
b. Compute the amount of interest income earned by Taylor's for the first year of the lease.

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Definitions:

After-Tax Discount Rate

The rate used to discount future cash flows to their present value after accounting for taxes.

Depreciation Tax Shield

A reduction in taxable income resulting from the allowance for depreciation expenses on assets.

Net Advantage

The benefit or advantage one entity has over competitive entities, often assessed in terms of efficiency, cost, or market position.