Question
On January 1, 2021, Lessor Co. leases equipment to Lessee Co. with 8 equal annual payments of $117,000 each, payable beginning January 1, 2021. Lessee
On January 1, 2021, Lessor Co. leases equipment to Lessee Co. with 8 equal annual payments of $117,000 each, payable beginning January 1, 2021. Lessee Co. agrees to guarantee the $148,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $29,000. Lessee knows Lessors implicit interest rate is 10%. How much is the fair value of lease payments used in the present value test for lease classification purposes? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.)
For n=8, i=10%,
Future value of a single sum: 2.14
Present value of a single sum: 0.47
Future value of an ordinary annuity of $1: 11.44
Present value of an ordinary annuity of $1: 5.33
Present value of an annuity due of $1: 5.87
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