The machine-tool manufacturer Korvo offers its customers a choice between buying and leasing. It enters into a finance lease of a machining centre held in its inventory at a cost of 70,000, whose normal cash selling price, equal to its fair value, is 96,415. The customer makes 4 annual payments of 28,000, in arrears; Korvo expects an unguaranteed residual value of 5,000. The market rate, which is also the rate in the lease, is 8 %. Compute, rounding each present value to the euro, the revenue, the cost of sales and the selling profit at the commencement date.
- Cost of the machining centre in inventory
- 70,000
- Cash selling price (fair value)
- 96,415
- Annual payment in arrears
- 28,000
- Number of annual payments
- 4
- Unguaranteed residual value
- 5,000
- Market rate of interest
- 8 %