Question
LarkspurCompany is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a
LarkspurCompany is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years.Larkspurwants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,000at the end of the lease term.
If the fair value of the equipment at lease commencement is $75,000, what would be the amount of the annual rental paymentsLarkspurdemands of MTBA, assuming each payment will be made at the beginning of each year andLarkspurwishes to earn a rate of return on the lease of9%?
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Management Accounting Information for creating and managing value
Authors: Kim Langfield Smith, David Smith, Paul Andon, Ronald Hilton, Helen Thorne
8th edition
9781760420413 , 978-1760420406
