Question

*just need situation 2&3 answered

For each of the three independent situations below determine the amount of the annual lease payments. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain (EV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation Lease term (years) Lessor's rate of return Fair value of leased asset Lessor's cost of leased asset Purchase option: Exercise price Exercisable at end of year! Reasonably certain? $ 86,000 $ 63,000 $433,000 $433,000 $198,000 $158,000 $ 23,000 $ 63,000 $ 35,000 yes no yes Determine the annual lease payments for each situation: (Round your intermediate and final answers to the nearest whole dollar amount.) Annual lease payments IS 16.314 Situation 1 Situation 2 Situation 3

Answer 1

A В 1 Situation 1) 2 3 Amount to be recovered (fair Value) 4 Less: PV of the BPO Price - $23,000 X 0.68058 5 Amount to be recovered through periodic lease payments 86000 -15653.34 70347 Lease Payment at the beginning of each of the next 5 years - $70347 / 4.31213 7 (PV of $1 : n=5, i=8%) 16.314 10 Situation 2) 11 12 Amount to be recovered (fair Value) 13 Less: PV of the BPO Price - $63,000 X 0.64993 14 Amount to be recovered through periodic lease payments 433000 -40945.59 392054 15 92472 Lease Payment at the beginning of each of the next 5 years - 16 $392054/4.23972 (PV of $1 : n=5, i=9%) 17 21 Situation 3) 22 23 Amount to be recovered (fair Value) 24 Less: PV of the BPO Price - $35,000 X 0.81630 25 Amount to be recovered through periodic lease payments 198000 -28570.5 169429.5 26 Lease Payment at the beginning of each of the next 5 years - 27 S169429.5/2.80802 (PV of S1 : n=3, i=7% 28 60338