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Find the present value of minimum lease payments

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Question - On January 1, 2020 Arab Company leases a machine from GMC Corp. with 8 years useful life. The lease term is six-year requires payment of $87,000 at the beginning of each year. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. If the fair value of the machine is $520,000, and the machine will be reverting to GMC Corp at the end of lease term.

The present value of an annuity due of 1 for six years at 10% is 4.79079.

The present value of an annuity due of 1 for six years at 8% is 4.99271.

Find the present value of minimum lease payments?

a. $509,256.

b. $488,661.

c. $434,366.

d. $416,799.

Reference no: EM132978992

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