Cassandra Company decides to enter the leasing business. The entity acquires a specialized packaging machine for P3,000,000 cash and leases it for a period of 6 years after which the machine is to be returned to Cassandra Company for disposition. The guaranteed residual value of the machine is P200,000. The lease term is arranged so that a return of 12% is earned by Cassandra Company. What is the annual rental payable in advance required to yield the desired return?

Cassandra Company decides to enter the leasing business. The entity acquires a specialized packaging machine for P3,000,000 cash and leases it for a period of 6 years after which the machine is to be returned to Cassandra Company for disposition. The guaranteed residual value of the machine is P200,000. The lease term is arranged so that a return of 12% is earned by Cassandra Company. What is the annual rental payable in advance required to yield the desired return?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

See similar textbooks

Similar questions

Angelo Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P2,300,000. On January 1, 2020, Angelo Company leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual payment are due each January 1 and the first payment was made on January 1, 2020. The residual value of the machine is P200,000. The lease terms are arranged so that a return of 12% is earned by Angelo Company. What is the annual lease payment payable in advance required to yield the desired return?
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return?
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? A.P 500,000 B.P 477,826 C.P 559,610 D.P 460,000
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? P 500,000 P 477,826 P 559,610 P 460,000
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $11 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $11 PSF in (a) is too low and wants to raise that amount to $15 with the same $1 step-ups. However, now ATRIUM would provide ACME a $53,000 moving allowance and $130,000 in tenant improvements (Tls). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $14 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $6 PSF for 20,000 SF per year. If ATRIUM…
Macinski Leasing leases a new machine to Sharrer SA. The machine has a cost of €70,000 and fair value of €95,000. Under the 3-year, non- cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2019. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentalsare payable on each December 31, beginning December 31, 2019.Instructions1. Prepare the journal entry at commencement of the lease for Macinski.2. Prepare the journal entry at commencement of the lease for Sharrer.3. Prepare the journal entry at commencement of the lease for Sharrer, assuming (1) Sharrer does not know Macinski's implicit rate (Sharrer's incremental borrowing rate is 9%), and (2) Sharrer incurs initial directs costs of €10,000.
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $10 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $10 PSF in (a) is too low and wants to raise that amount to $14 with the same $1 step-ups. However, now ATRIUM would provide ACME a $52,800 moving allowance and $128,000 in tenant improvements (TIs). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $13 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $5 PSF for 20,000 SF per year. If…
Law Company leased a machine with a fair value of P 1,650,000 for a period of 5 years under a finance lease. The initial direct cost included in negotiating the lease amounted to P 12,500. The present value of the minimum lease payments discounted at the rate implicit in the lease is P 1,584,000. At what amount should the machine be recognized initially by Law Company? Show your solution.
Manning Imports is contemplating an agreement to lease equipment to a customer for five years. Manning normally sells the asset for a cash price of $100,000. Assuming that 8% is a reasonable rate of interest, what must be the amount of quarterly lease payments (beginning at the commencement of the lease) in order for Manning to recover its normal selling price as well as be compensated for financing the asset over the lease term?
11. What amount of gross income should be recognized by the entity for 2020? a. P555,000 b. P827,000 c. P955,000 d. P700,000 12. What amount should be recognized as interest income for 2020? a. P194,160 b. P154,160 c. P172,400 d. P128,000
Manning Imports is contemplating an agreement to lease equipment to a customer for five years. Manning normally sells the asset for a cash price of $100,000. Assuming that 8% is a reasonable rate of interest, what must be the amount of quarterly lease payments (beginning at the inception of the lease) in order for Manning to recover its normal selling price as well as be compensated for financing the asset over the lease term?
Callaway Golf Co. leases telecommunications equipment. Assume the following data for equipment leased from Photon Company. The lease term is 5 years and requires equal rental payments of $31,000 at the beginning of each year. The equipment has a fair value at the inception of the lease of $138,000, an estimated useful life of 8 years, and no residual value. Callaway pays all executory costs directly to third parties. Photon set the annual rental to earn a rate of return of 10%, and this fact is known to Callaway. The lease does not transfer title or contain a bargain purchase option. How should Callaway classify this lease?