York Leasing Ltd. leased machine to Grafton Inc. a machine under the following terms on January 1, 2020:

• The term of the non-cancellable lease is five (5) years, with no renewal option.
• Equal rental payments are due on January 1 of each year, beginning in 2020.
• The machine's fair value on January 1, 2020 is $320,000.
• York Leasing set the annual rental to ensure a 9% rate of return.

Instructions

1. Assume that themachine reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $4,500,calculate the amount of the annual rental payment should charge.
2. Assume that thelease has an option that allows Grafton to purchase the machine for $3,000, which is below the estimate fair value, at the end of the lease, calculate the amount of the annual rental payment should charge.
3. Assume thatGrafton keeps the machine at the termination of the lease,calculate the amount of the annual rental payment.