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A regional jet manufacturer delivers 20 regional jets to an airline under long-term leases. The leaseterms are for 15 years with annual payments of $5 million per plane; the first payment is due on delivery.The company classifies the leases as finance leases and prepares its financial statements according to USGAAP. The company usually sells these jets for $45 million each, with production cost averaging $40million per jet. In the year in which the leases are signed, if an interest rate of 7% is used to determine thepresent value of the lease payments on the deal, the gross profit on this transaction will be closest to:

A.$175 million.
B.$100 million.
C.$111 million.

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ahmedgodtrust

Answer:

Gross profit per jet = Selling price - Production cost per jet

Gross profit per jet = $45 million - $40 million

Gross profit per jet = $5 million

Gross profit = $5 million x 20 jets

Gross profit = $100 million

Explanation:

Gross profit = Sales - Production cost. In this case, we need to calculate gross profit per unit and multiply the gross profit per unit by number of jets sold.

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