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What is the cost of the leased property to average

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Question - On January 1, 2016, Average Leasing Company entered into a direct financing lease with a lessee, Lenny Company. The lease agreement calls for five equal annual payments of $75,000 at the beginning of each year with the first payment due on January 1, 2016. The leased property has an estimated residual value of $10,000, which Lenny does not guarantee. The property remains the property of Average at the end of the lease term. Average desires a 12% rate of return. Present value factors for a 12% interest rate are as follows:

Present value of $1 for n = 1 0.892857

Present value of $1 for n = 5 0.567427

Present value of an ordinary annuity for n = 5 3.604776

Present value of an annuity due for n = 5 4.037349

Required - What is the cost of the leased property to Average (round the answer to the nearest dollar)?

A. $276,032

B. $302,801

C. $308,475

D. $270,358

Reference no: EM133135353

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