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What would be the amount of the annual rental payments

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Question - Seal Brothers Company is negotiating to lease a piece of equipment to UHA, Inc. UHA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Seal Brothers wants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. UHA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,000 at the end of the lease term.

If the fair value of the equipment at lease commencement is $120,000, what would be the amount of the annual rental payments Seal Brothers demands of UHA, assuming each payment will be made at the beginning of each year and Seal Brothers wishes to earn a rate of return on the lease of 11%?

Reference no: EM133182644

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