Car Co. is negotiating to lease a piece of equipment to MT plc. MT plc requests that the lease be for 9 years. The equipment has a useful life of 10 years. Car Co. wants a guarantee that the residual value of the equipment at the end of the lease is at least £5,000. MT plc agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only £2,500 at the end of the lease term. If the fair value of the equipment at lease commencement is £70,000, what would be the amount of the annual rental payments Car Co. demands of MT plc, assuming each payment will be made at the beginning of each year and Car Co. wishes to earn a rate of return on the lease of 8%?

Car Co. is negotiating to lease a piece of equipment to MT plc. MT plc requests that the lease be for 9 years. The equipment has a useful life of 10 years. Car Co. wants a guarantee that the residual value of the equipment at the end of the lease is at least £5,000. MT plc agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only £2,500 at the end of the lease term. If the fair value of the equipment at lease commencement is £70,000, what would be the amount of the annual rental payments Car Co. demands of MT plc, assuming each payment will be made at the beginning of each year and Car Co. wishes to earn a rate of return on the lease of 8%?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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