On December 31, 2019, Sage Hill Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Sage Hill to make annual payments of $8,026 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,900 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Sage Hill uses the straight-line method of depreciation for all of its plant assets. Sage Hill's incremental borrowing rate is 6%, and the lessor's implicit rate is unknown.

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(a)

What type of lease is this?

This is a/an select a type of lease

finance

lease.

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(b)

Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.)

Present value of the lease payments

$enter the Present value of the lease payments in dollars