What is the amount of the total annual lease payment? a. $443,851 b. $451,851 c. $488,236 d. $591,801
Use the following Annuity Table for question
|
Future Value of Ordinary Annuity of 1 |
|||||
|
Period |
5% |
6% |
8% |
10% |
|
|
12% |
|||||
|
1 |
1.00000 |
1.00000 |
1.00000 |
1.00000 |
1.00000 |
|
2 |
2.005000 |
2.06000 |
2.08000 |
2.10000 |
2.12000 |
|
3 |
3.15250 |
3.18360 |
3.24640 |
3.31000 |
3.37440 |
|
4 |
4.31013 |
4.37462 |
4.50611 |
4.64100 |
4.77933 |
|
5 |
5.52563 |
5.63709 |
5.86660 |
6.10510 |
6.35285 |
|
6 |
6.80191 |
6.97532 |
7.33592 |
7.71561 |
8.11519 |
|
7 |
8.14201 |
8.39384 |
8.92280 |
9.48717 |
10.08901 |
|
8 |
9.54911 |
9.89747 |
10.63663 |
11.43589 |
12.29969 |
|
9 |
11.02656 |
11.49132 |
12.48756 |
13.57948 |
14.77566 |
|
10 |
12.57789 |
13.18079 |
14.48656 |
15.93743 |
17.54874 |
|
Present Value of an Ordinary Annuity of 1 |
|||||
|
Period |
5% |
6% |
8% |
10% |
|
|
12% |
|||||
|
1 |
.95238 |
.94340 |
.92593 |
.90909 |
.89286 |
|
2 |
1.85941 |
1.83339 |
1.78326 |
1.73554 |
1.69005 |
|
3 |
2.72325 |
2.67301 |
2.57710 |
2.48685 |
2.40183 |
|
4 |
3.54595 |
3.46511 |
3.31213 |
3.16986 |
3.03735 |
|
5 |
4.32948 |
4.21236 |
3.99271 |
3.79079 |
3.60478 |
|
6 |
5.07569 |
4.91732 |
4.62288 |
4.35526 |
4.11141 |
|
7 |
5.78637 |
5.58238 |
5.20637 |
4.86842 |
4.56376 |
|
8 |
6.46321 |
6.20979 |
5.74664 |
5.33493 |
4.96764 |
|
9 |
7.10782 |
6.80169 |
6.24689 |
5.75902 |
5.32825 |
|
10 |
7.72173 |
7.36009 |
6.71008 |
6.14457 |
5.65022 |
On January 1, 2015, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a
storage building from Holt Warehouse Company. Collectibility of lease payments is
reasonably predictable and no important uncertainties surround the amount of costs yet to be
incurred by the lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the beginning each year.
(b) The fair value of the building on January 1, 2015 is $3,000,000; the book value to
Holt is also $3,000,000.
(c) The building has an estimated economic life of 10 years, with no residual value.
Yancey depreciates similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the
lessee.
(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the
annual rental to insure a 10%
by Yancey, Inc.
(f) The yearly rental payment includes $8,000 of executory costs related to taxes on the
property.
What is the amount of the total annual lease payment?
a. $443,851
b. $451,851
c. $488,236
d. $591,801
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