Find the present value of the lease payments

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Reference no: EM132634090

Question - Blue Ltd and Sky Ltd enter into a finance lease agreement with the following terms:

Lease term is 7 years

Estimated economic life of the leased asset is 10 years

7 × annual rental payments of $25 000 each payable in advance

Guaranteed residual value at the end of the lease term is $10 000

Initial direct costs of $2000 incurred by the lessee

$5000 is the amount of the residual value guarantee that was expected to be payable by the lessee at the end of the least term

Interest rate implicit in the lease is 10%.

Required - On inception date, find the present value of the lease payments?

a. $113,447

b. $111,447

c. $138,447

d. $136,447

Reference no: EM132634090

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