Question
Information has been gathered for two leases: LEASE A The fair value of the equipment is $800,000 at the inception of the lease. The lease
Information has been gathered for two leases: LEASE A The fair value of the equipment is $800,000 at the inception of the lease. The lease term is five years, and there is a 3-year renewal term at the option of the lessor. Annual lease payments are $145,000 per year for the first 5 years and $100,000 for the next 3 years. Payments are due at the beginning of each lease year. All lease payments include the cost of insurance,estimated at $15,000 per year.
The lessee has a residual guarantee value of $40,000 at the end of the 8th year.
The lessee does not know the lessors implicit rate of interest in the lease. The lessees incremental borrowing rate is 8%.
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