The Lessee in the Finance lease problem considers the finance lease to be too expensive.

It has negotiated

Is the Lease Term

Revised Contract Terms

Change from

Finance Lease

1

Lease Term

2 years

Yes

2

Implied Lease Rate

6%

Yes

3

Annual Lease Payment

40,000

Yes

Note: the sum over the available contract term remains 40,000

4

Residual Value

0

NO

5

Timing of lease payments

At start of year

Yes