Khaleesi Corporation (Khaleesi) leases dragonglass weapons to customers. She gains a loyal following of customers because dragonglass is of limited supply but high demand due to its usefulness for the upcoming winter. Further, Khaleesi tends to offer more favorable financing terms than competitors offering substitutive products (e.g., Lannister, LLC).

Khaleesi was recently approached by the Lords of the North, Inc. (the North) which is interested in leasing a substantial stock of weapons over a potentially lengthy period of time. The North has indicated a willingness to pay any rate that Khaleesi Corporation demands for its dragonglass products, but generally receives an interest rate of 12% on all other borrowing transactions. The Norths management are a very noble group, so payments are reasonably assured. Further, there are no material cost uncertainties.

Khaleesi has gathered its council to discuss entering into such a contract with the North and has invited you to provide financial council. Khaleesis board has proposed several alternative sets of lease terms (below) and would like you determine what the Norths annual payments will be under each scenario, if payments are made at the beginning of the period.

REQUIRED:

1. On the first tab of your Excel workbook, prepare a schedule for Khaleesi which uses Excel to compute the Norths necessary annual payment under each of the scenarios listed in the chart above. The schedule should list for each scenario above the desired present value of lease payments, future value of the leased asset, the lease term, and the interest rate and utilize an Excel formula to compute a payment.

Khaleesi is a high paying client of your firm, so the schedule should be extremely organized and professional looking (e,g., include a title, date, description in the top left-hand corner and utilize borders, font effects, etc. in cells to make the worksheet look visually appealing).

(Note: You must use only Excel to prepare and present all parts of this table. Do not use a hand-held calculator, and do not use the compound interest tables to solve any part of this problem. Points will be deducted if Excel formulas are not used for each necessary computation.)

For the requirements below, assume Khaleesi Corporation chooses lease option A and enters into an agreement with the North on 1/1/18. The North should return the weapons on 12/31/2028.

2. On the second tab of the Excel workbook, prepare a lease amortization schedule describing the pattern of payments and interest over the lease term for both Khaleesi and the North.

(Note: You must use only Excel to prepare and present all parts of this table. Do not use a hand-held calculator, and do not use the compound interest tables to solve any part of this problem.)

3. On the third tab of the Excel workbook, prepare the appropriate entries for both Khaleesi and the North on 1/1/18. Numbers in journal entries should be linked to the table prepared in number 2 above or computed using Excel formulas.

In other words, do not hard-key the numbers for your debits and credits. Instead, type = into the cell and then click the number from the second tab of the workbook.

4. On the fourth tab of the Excel workbook, prepare the appropriate entries for both Khaleesi and the North through 1/1/21. Numbers in journal entries should be linked to the table prepared in number 2 above or computed using Excel formulas.

5. On the fifth tab of the Excel workbook, prepare the appropriate entries for both Khaleesi and the North on 12/31/2028. Assume the weapons returned to Khaleesi have a residual value of $500.

Fair value of weapons to be leasedS365,760$365,760 Lease Term Useful Life of leased assets Desired rate of return Residual Value (guaranteed) 11 years 13 years 10% S0 11 years 13 years 10% $24,350 $365,760 6 years years 13% $24,350