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. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD 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? 4. 10% 9% 11% $ 196,000 $ 156,000 $ 82,000 $ 61,000 $ 431,000 $ 431,000 $ 21,000 $ 33,000 12 $61,000 no yes yes Determine the annual lease payments for each situation (Round your intermediate and final answer to the nearest whole dollar amount.): Annual lease payments Situation 1 Situation 2 Situation 3

Answer 1

Determination of annual lease rentals in all the three situations.

Situation 3. $,56,000 LR LR %3D LR (109)3 (1.09)² + 1.09 $ 1,56,000 = 0.917 LR + 0.8421R +0.772LR $1,56,000 = 2:531 LR Annial LR = 61,6 36 (Rounded aff) %3D Rate of uetum 9%

each sitlation. Annual liase paymends fou Situa Hon 1 lease Rental (1:1)? leam. Rental (1.1)3 61,000$= lease Rental (dessau's cost l leased D Aooest) lease Remtal (1)4 0'826 LR +0.751LR+ 0.683LR 6looc) 0.909 LR + 3.169 LR GI000 = Annual LR= $9249/( Round less ou's Hate of Retusm us 10%. Situation 2 LR 1.11 $4,31000. LR +LR +LR (111)2 (1-11)3 (I-11)4 0.9011R+ 0.812 LR + 0.731LR +0-659LR $4,31.000 %3D $4,31 p00 = 3 103 LR Lease Rental $1,38,898. Amnual 11% lessor's Mate Hehurm