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What is the amount of the annual lease payment

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Question - On January 1, Year 1, A Company leases some non-specialized equipment to Z Company on a non-cancelable lease. The cost to X of the equipment is $250,000, but it's fair value is $500,000. The lease has a useful life and lease term of 10 years. The implicit rate is 12%, which is also incremental borrowing rate. Payments are due every annually, with the first payment due January 1, Year 1. There is no residual value on the lease. However, there is a purchase option at the end of the lease term of $5,000, which is such a bargain it is extremely likely Z will exercise that option. What is the amount of the annual lease payment?

Reference no: EM133057571

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