E 15-16 Calculation of annual lease payments; BPO LO15-5, LO15-6, LO15-7 For cach of the three independent situations below determine the amount of the annual lease payments. Each describes a capital 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 soffi- ciently lower than the expected fair value that the exercise of the option appears reasonably certain Situation 1 2 3 Lease term (years) 5 12 4 Lessor's rate of return 12% 11% 9% Fair value leased asset $60,000 $420,000 $185,000 Lessor's cost of leased asset $50,000 $420,000 $145,000 Bargain purchase option: Option price $10,000 $ 50,000 $ 22,000 Exercisable at end of year: 5 5 3 15-18 rgain purchase Universal Leasing leases electronic equipment to a variety of businesses. The company's primary service is pro- viding alternate financing by acquiring equipment and leasing it to customers under long-term direct financing