The Digital Business Machines, Ltd., leases super computers to government agencies and educational centers. It is negotiating terms to lease a mega-machine to the Philippines International Institute, Inc. The market value of the equipment is estimated to be 2,160,000 with a manufacturing cost of 1,600,000. The deal on the following terms is being reviewed:

1. The equipment is to be leased for 6 years and its estimated useful life is expected to be 10 years.
2. Because the computer has to be significantly modified to suit the specific needs of the lessee, the residual value is placed at $972,000 which is considered to be considered to be significantly lower than the value of similar models which do not go through such modification. In addition, the lessor does not expect any salvage value at the end of the computers life. The lessee has not provided any guarantee for the market value of the returned equipment.
3. The lessee has been offered the option to purchase the equipment at the end of the lease. This option is really not considered to be much below the estimated fair market value at that date.
4. The payments are annual and the lessor requires interest to be charged at 8%. The instalments are due at the beginning of each period.
5. Since the Institute is an organization of international repute, the lessor does not insist upon any guarantee from the lessee.
6. Both organizations follow IFRS, have head offices in Canada and have December 31 year ends. The accountant showed you an excerpt from IAS-17, as is shown below and which was referred to by both parties in accounting for their respective lease contracts.
7. The lease is expected to start on January 1, 20X6 and the lessee will pay for all executory costs which may be incurred for installing, maintaining, dismantling and transporting the equipment.

Determine the minimum lease instalment which the lessor should charge each period under the above-mentioned terms. (ANS: (2,160,000 - (972,000 x 0.63017)/4.99271) = $309,946.85)

Please explain why the answer if the above with visual calculations and explanations. Thank you!