Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Advanced Modelling In Mathematical Finance

Authors: Jan Kallsen, Antonis Papapantoleon

1st Edition

3319458736, 978-3319458731

More Books

Students also viewed these Finance questions