On January 1, 2018, Carla Vista, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. (a) The agreement requires equal rental payments at the beginning each year. (b) The fair value of the building on January 1, 2018 is $5750000; however, the book value to Holt is $4700000. (c) The building has an estimated economic life of 10 years, with no residual value. Carla Vista depreciates similar buildings using the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) Carla Vistas incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Carla Vista, Inc. (f) The yearly rental payment includes $14500 of executory costs related to taxes on the property.

Future Value of Ordinary Annuity of 1

Period 5% 6% 8% 10% 12% 1 1.00000 1.00000 1.00000 1.00000 1.00000 2 2.05000 2.06000 2.08000 2.10000 2.12000 3 3.15250 3.18360 3.24640 3.31000 3.37440 4 4.31013 4.37462 4.50611 4.64100 4.77933 5 5.52563 5.63709 5.86660 6.10510 6.35285 6 6.80191 6.97532 7.33592 7.71561 8.11519 7 8.14201 8.39384 8.92280 9.48717 10.08901 8 9.54911 9.89747 10.63663 11.43589 12.29969 9 11.02656 11.49132 12.48756 13.57948 14.77566 10 12.57789 13.18079 14.48656 15.93743 17.54874

Present Value of an Annuity Due of 1

Period 5% 6% 8% 10% 12% 1 1.00000 1.00000 1.00000 1.00000 1.00000 2 1.95238 1.94340 1.92593 1.90909 1.89286 3 2.85941 2.83339 2.78326 2.73554 2.69005 4 3.72325 3.67301 3.57710 3.48685 3.40183 5 4.54595 4.46511 4.31213 4.16986 4.03735 6 5.32948 5.21236 4.99271 4.79079 4.60478 7 6.07569 5.91732 5.62288 5.35526 5.11141 8 6.78637 6.58238 6.20637 5.86842 5.56376 9 7.46321 7.20979 6.74664 6.33493 5.96764 10 8.10782 7.80169 7.24689 6.75902 6.32825

What is the annual lease payment excluding executory costs? (Rounded to the nearest dollar.)

$850715

$275715

$836215

$865215