Toohey Corp. has negotiated a lease for new machinery on January 2, 2016. The machinery has a fair value of $1,100,000 and an expected economic life of six years. The lease has a five-year term. Annual rental is paid at the beginning of the lease year, in the amount of $208,600. Insurance and operating costs, approximately $30,000, are paid directly by Toohey Corp. in addition to the lease payments. At the end of the lease term, the machinery will revert to the lessor, which will sell it for an expected $150,000. If the lessor does not realize $150,000 in the sale, then Toohey Corp. has agreed to make up the difference. Toohey Corp. does not know the lessor's implicit interest rate. Toohey Corp. depreciates assets on a straight-line basis.

Required:

1.Calculate the present value of the lease payments. Toohey's IBR is 10%.

2.Create an amortization table for the first two years of the lease.