EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Larkspur Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Cullumber Medical Center for a period
of 10 years. The normal selling price of the machine is $528,109, and its guaranteed residual value at the end of the non-cancelable
lease term is estimated to be $15,000. The hospital will pay rents of $64,000 at the beginning of each year. Larkspur incurred costs of
$263,000 in manufacturing the machine and $14,200 in legal fees directly related to the signing of the lease. Larkspur has determined
that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Cullumber Medical Center has an
incremental borrowing rate of 5% and an expected residual value at the end of the lease of $10,000.
Click here to view factor tables.
(a)
Your answer is incorrect.
Discuss the nature of this lease in relation to the lessee.
The nature of this lease in relation to the lessee is finance lease
Compute the amount of the initial lease liability. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final
answer to O decimal places e.g. 5,275.)
Initial Lease Liability
$
159,038
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