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What would be the amount of the annual rental payments

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Reference no: EM132512342

Splish Brothers Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $58,000, and Splish Brothers expects the machinery to have a residual value at the end of the lease term of $26,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $56,000 instead of $26,000.

Question 1: What would be the amount of the annual rental payments Splish Brothers demands of Thiensville, assuming each payment will be made at the end of each year and Splish Brothers wishes to earn a rate of return on the lease of 5%?

Reference no: EM132512342

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