Question

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. (FV 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 1 6 12% $ 76,000 $ 58,000 10% $ 428,000 $ 428,000 3 5 8% $ 193,000 $ 153,000 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? $ 18,000 $ 58,000 $ 30,000 Shoes 5$ 130,00 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 Situation 1 Situation 2 Situation 3

Answer 1

Answer 1.
Amount to be recovered (fair Value)	76000
Less: PV of the BPO Price - $18000 X 0.50663	-9119
Amount to be recovered through periodic lease payments	66881
Lease Payment at the beginning of each of the next 5 years - $66881/ 4.1114 (PV of $1 : n=6, i=12%)	16267
Answer 2.
Amount to be recovered (fair Value)	428000
Less: PV of the BPO Price - $58000 X 0.56447	-32739
Amount to be recovered through periodic lease payments	395261
Lease Payment at the beginning of each of the next 5 years - $395261/4.3553 (PV of $1 : n=6, i=10%)	90754
Answer 3
Amount to be recovered (fair Value)	193000
Less: PV of the BPO Price - $30000 X 0.73503	-22051
Amount to be recovered through periodic lease payments	170949
Lease Payment at the beginning of each of the next 5 years - $170949/3.3121(PV of $1 : n=4, i=8%)	51613