Question:3 (10) A Leasing Company signs an agreement on January 1, 2010, to lease equipment to Almarai Company. The following information relates to this agreement. 1. The term of the no cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is SAR250,000. The fair value of the asset at January 1, 2010, is SAR250,000. 3. The asset will revert to the lessor at the end of the lease term at which time the asset is expected to have a residual value of SAR50000, none of which is guaranteed. 4 The agreement requires annual rental payments, beg. Jan. 1, 2010. 5. Collectability of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. A. Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required. a. Prepare an amortization schedule that would be suitable for the lessor. [(PV factor of single sum i = 10%, n=6, 0.56447) (PV factor of annuity i = 10%, n=6, 4.79079)] Answer. Residual value $ 50,000 PV of single sum (i-10%, n=6) x 0.56447 PV of residual value $28,223.5