A lessor is organizing the lease of a new asset with a lessee. The asset has been customized to the lessees specifications and will not be useable in future leases if the lessee does not consume most, if not all, of its value. The Lessor concludes that this lease will be a Finance Lease from the Lessees point of view and this makes it a SALES lease from the Lessors point of view.

The Fair Value of the customized asset, including the customization, is $ 10,000.

The Lessor determines that the useful economic life of the asset is 2 years. At the end of the lease this asset will have NO residual value due to a combination of its use and the customization. The Lessor must obtain 100% of its expected return from the Lease Payments. It decides to offer the Lessee a two-year lease with equal payments due at the END of every year. The Lessor wants to set the Present Value of the Lease equal to the Fair value of the leased asset after customization so it earns full return of its investment plus a reasonable return on the investment. The Lessors Implied lease rate, the expected return on the investment, is 4 %.

CALCULATE THE ANNUAL LEASE PAYMENTS.