On January 1,2020, Andrea signs a 5-year noncancelable lease agreement to lease a heavy equipment to Tips Corporation. The following information pertains to this lease agreement. Equal annual rental is payable at the beginning of each year, with bargain purchase option of P40,000. The fair value of the equipment on January 1, 2022 is P600,000 with estimated residual value of P80,000 at the end of lease term. Andrea set the annual rental to insure a 10% rate of return. Tips' incremental borrowing rate is 11%. The present value of annuity of 1 in advance for 5 periods at 10% is 4.170; at 11% - 4.102. The present value of 1 at 10% for 5 periods is 0.621; The present value of 1 at 11% for 5 periods is 0.594. How much is the annual lease payment?
On January 1,2020, Andrea signs a 5-year noncancelable lease agreement to lease a heavy equipment to Tips Corporation. The following information pertains to this lease agreement.
Equal annual rental is payable at the beginning of each year, with bargain purchase option of P40,000. The fair value of the equipment on January 1, 2022 is P600,000 with estimated residual value of P80,000 at the end of lease term. Andrea set the annual rental to insure a 10%
How much is the annual lease payment?
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