On January 1, 2021, the lessee company signs a 10-year, non-cancelable lease agreement to lease a building from the lessor company. The agreement requires equal rental payments of $115,000 beginning on January 1, 2021. The building has a guaranteed residual value of $17,000, and an expected residual value of $3,000. The lessee's incremental borrowing rate is 10% per year. However, the lessee knows that the lessor’s implicit interest rate is 12%. What is the present value of lease payments? (You must choose from the following present/future values
On January 1, 2021, the lessee company signs a 10-year, non-cancelable lease agreement to lease a building from the lessor company. The agreement requires equal rental payments of $115,000 beginning on January 1, 2021. The building has a guaranteed residual value of $17,000, and an expected residual value of $3,000. The lessee's incremental borrowing rate is 10% per year. However, the lessee knows that the lessor’s implicit interest rate is 12%. What is the present value of lease payments? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.)
|
|
Future Value Single Sum |
Present Value Single Sum |
Future Value Ordinary Annuity |
Present Value Ordinary Annuity |
Present Value Annuity Due |
|
10%, 10 periods |
2.59 |
0.39 |
15.94 |
6.14 |
6.76 |
|
12%, 10 periods |
3.11 |
0.32 |
17.55 |
5.65 |
6.33 |
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