Reference no: EM132513746

Question 1 - Frank Corporation has an asset with a fair market value of $200,000 that it wants to lease. Frank's wants to recover its net investment in the leased asset and earn a 10% return. The asset will revert back to Frank's at the end of a 6-year lease term. If Frank's charges rent annually at the beginning of the year, what should amount should the annual rent be (rounded to whole dollars)?

a) $18,817

b) $33,333

c) $41,747

d) $53,333

Question 2 - Rabbit Inc. has an asset with a fair market value of $450,000 that it wants to lease. Rabbit's wants to recover its net investment in the leased asset and earn an 8%. The asset will revert back to Rabbit's at the end of a 5-year lease term and it is expected that the residual value of the asset will be $20,000 at the end of the lease. If Rabbit wants to charge rent semi-annually starting at the beginning of the lease, what amount should the lease payments be (rounded to whole dollars)?

a) $60,817

b) $51,745

c) $101,200

d) $104,367