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Find and solve the amount of the annual rental payment

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Reference no: EM132751354

On January 1, 2017, Jubilee Corp. leased equipment to Cobourg Ltd. The following information concerns this lease.

  • The term of the non-cancellable lease is six years, with no renewal option.
  • Equal rental payments are due on January 1 of each year, beginning in 2017.
  • The equipment's fair value on January 1, 2017 is $144,000.
  • Jubilee set the annual rental to ensure an 8% rate of return.

Instructions

Problem 1: Assume that the equipment reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $6,000, calculate the amount of the annual rental payment.

Problem 2: Assume that the lease has a bargain purchase option that allows Cobourg to purchase the equipment for $2,000 at the termination of the lease, calculate the amount of the annual rental payment.

Problem 3: Assume that Cobourg keeps the equipment at the termination of the lease, calculate the amount of the annual rental payment.

Reference no: EM132751354

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