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ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.
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ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five y...
Analysis of the Lease Agreement for ABC Ltd
Lease Details:
- Cost of the asset: Rs.3,60,000
- Lease period: 5 years
- Fixed rental amount: Rs.1,05,000 per annum
- Rental payment frequency: Annually, starting from the end of the first year
Interest Rate:
- Annual interest rate: 14%
- Interest compounded annually
Calculation of Present Value:
To determine if the lease agreement is favorable for ABC Ltd, we need to calculate the present value of the lease payments and compare it to the cost of the asset.
Using the formula for calculating the present value of an annuity, we can calculate the present value of the lease payments as follows:
PV = Payment x [(1 - (1 + r)^(-n)) / r]
Where:
PV = Present Value
Payment = Annual rental payment
r = Interest rate per period (annual interest rate compounded annually)
n = Number of periods (lease period)
Substituting the given values into the formula, we get:
PV = 1,05,000 x [(1 - (1 + 0.14)^(-5)) / 0.14]
= 1,05,000 x (1 - 0.487)
= 1,05,000 x 0.513
= Rs.53,865
Comparison:
The present value of the lease payments is Rs.53,865, which is significantly less than the cost of the asset (Rs.3,60,000). This indicates that the lease agreement is favorable for ABC Ltd.
Explanation:
The present value of the lease payments represents the discounted value of the future rental payments, considering the time value of money. In this case, the present value is much lower than the cost of the asset, indicating that ABC Ltd is paying a relatively lower amount for the use of the asset over the lease period.
The lease agreement allows ABC Ltd to use the asset for five years while making annual rental payments of Rs.1,05,000. Considering the interest rate of 14% per annum, compounded annually, the present value of these lease payments is only Rs.53,865.
By entering into this lease agreement, ABC Ltd can save a significant amount compared to the cost of purchasing the asset outright. This allows the company to conserve its cash flow and allocate resources to other areas of the business.
Therefore, based on the present value analysis, the lease agreement is favorable for ABC Ltd as it offers a cost-effective solution for acquiring the asset.
Lease Details:
- Cost of the asset: Rs.3,60,000
- Lease period: 5 years
- Fixed rental amount: Rs.1,05,000 per annum
- Rental payment frequency: Annually, starting from the end of the first year
Interest Rate:
- Annual interest rate: 14%
- Interest compounded annually
Calculation of Present Value:
To determine if the lease agreement is favorable for ABC Ltd, we need to calculate the present value of the lease payments and compare it to the cost of the asset.
Using the formula for calculating the present value of an annuity, we can calculate the present value of the lease payments as follows:
PV = Payment x [(1 - (1 + r)^(-n)) / r]
Where:
PV = Present Value
Payment = Annual rental payment
r = Interest rate per period (annual interest rate compounded annually)
n = Number of periods (lease period)
Substituting the given values into the formula, we get:
PV = 1,05,000 x [(1 - (1 + 0.14)^(-5)) / 0.14]
= 1,05,000 x (1 - 0.487)
= 1,05,000 x 0.513
= Rs.53,865
Comparison:
The present value of the lease payments is Rs.53,865, which is significantly less than the cost of the asset (Rs.3,60,000). This indicates that the lease agreement is favorable for ABC Ltd.
Explanation:
The present value of the lease payments represents the discounted value of the future rental payments, considering the time value of money. In this case, the present value is much lower than the cost of the asset, indicating that ABC Ltd is paying a relatively lower amount for the use of the asset over the lease period.
The lease agreement allows ABC Ltd to use the asset for five years while making annual rental payments of Rs.1,05,000. Considering the interest rate of 14% per annum, compounded annually, the present value of these lease payments is only Rs.53,865.
By entering into this lease agreement, ABC Ltd can save a significant amount compared to the cost of purchasing the asset outright. This allows the company to conserve its cash flow and allocate resources to other areas of the business.
Therefore, based on the present value analysis, the lease agreement is favorable for ABC Ltd as it offers a cost-effective solution for acquiring the asset.
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ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.?
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ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.? for Class 10 2024 is part of Class 10 preparation. The Question and answers have been prepared according to the Class 10 exam syllabus. Information about ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.? covers all topics & solutions for Class 10 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.?.
ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.? for Class 10 2024 is part of Class 10 preparation. The Question and answers have been prepared according to the Class 10 exam syllabus. Information about ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.? covers all topics & solutions for Class 10 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.?.
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ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.?, a detailed solution for ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.? has been provided alongside types of ABC Ltd wants to lease out and I said costing Rs.3,60,000 for a five year period it has a fixed rental of Rs.1,05,000 per annum payable annually starting from the end of first year supposed rate of interest is 14% per annum compounded annually on which money can be invested in the company is this agreement favourable to the company.? theory, EduRev gives you an
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