Question
On January 1, 2018, Corp X issued 3%, 3 year Bonds to the public, and also signed a 3 and 1/2 -year lease with PH
On January 1, 2018, Corp X issued 3%, 3 year Bonds to the public, and also signed a 3 and 1/2 -year lease with PH Corp. Payments of $10,000 on the lease are made at the end of the year for years 1,2 and 3 and ($5,000 in the last period; year 4.) There is a bargain purchase for the purchase of the asset for $3,000 at the end of the lease term. The asset has a fair value of $35,000 and has a useful economic life of 4 years.
Corp. X is rated as a BBB rated company by Moodys Investors-a rating company.
Additional Facts
1-BBB Market Interest rates:
Date of issue on 12/31/2019
Year 1 2% 1.5%
Year 2 2.5% 2.0%
Year 3 2.75% 2.5%
Year 4 3,5% 3.0%
Year 5 4.0%. 4.0%
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3% bond issued for 3 year
Market interest rate = 3.5% from BBB
1. What is the implicit rate (IRR) on the lease?
2. What type of lease is this? Why?
3.What is the balance sheet effects of this lease on 1/1/18 and 12/31/18?
4. what is the lease expense in 2018? -PROVIDE ITS COMPONENTS
5. Present the cash flow effects of this lease for 2018.
PRESENT ALL DETAILED CALCULATIONS FOR EACH QUESTION*
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