A financing entity acquired an asset for P3,165,000. This is immediately leased to another company on January 1, 2020. Annual lease payments are due at the end of each year, starting December 31, 2020. Unguaranteed residual value at the end of the lease term on December 31, 2024 is P500,000. Underlying asset will revert to the lessor at the end of the lease term. Lessor’s implicit interest rate is 12%. PV factors are shown below
A financing entity acquired an asset for P3,165,000. This is immediately leased to another company on January 1, 2020. Annual lease payments are due at the end of each year, starting December 31, 2020. Unguaranteed residual value at the end of the lease term on December 31, 2024 is P500,000. Underlying asset will revert to the lessor at the end of the lease term. Lessor’s implicit interest rate is 12%. PV factors are shown below
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A financing entity acquired an asset for P3,165,000. This is immediately leased to another company on January 1, 2020. Annual lease payments are due at the end of each year, starting December 31, 2020. Unguaranteed residual value at the end of the lease term on December 31, 2024 is P500,000. Underlying asset will revert to the lessor at the end of the lease term. Lessor’s implicit interest rate is 12%. PV factors are shown below:
· PV of 1 at 12% for five periods: 0.57
· PV of ordinary annuity at 12% for five periods: 3.60
How much is the annual rental payment?
· PV of 1 at 12% for five periods: 0.57
· PV of ordinary annuity at 12% for five periods: 3.60
How much is the annual rental payment?
a. 740,278
b. 879,166
c. 800,000
d. 500,000
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