Exercise 5-26 (Algo) Lease payments; solve for unknown interest rate [LO5-9, 5-10]

On March 31, 2024, Southwest Gas leased equipment from a supplier and agreed to pay $270,000 annually for 25 years beginning March 31, 2025. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $4,217,962 lease liability.

Required:

Determine the interest rate implicit in the lease agreement.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Present value of lease:	$4,217,962
n =
i =
Lease payments