On December 31, 2020, the City of Oliver leases a large piece of construction equipment with a 25-year life for five years to use during a construction project. After the contract ends, the city must return the equipment to the lessor but has not guaranteed any residual value. The lease requires five annual payments of $40,000 per year beginning immediately. Oliver uses its own incremental borrowing rate of 10 percent per year because it does not know the implicit interest rate the lessor is charging. The present value of a $40,000 annuity due for five years at an annual interest rate of 10 percent is $166,795 (rounded).
On December 31, 2020, the City of Oliver leases a large piece of construction equipment with a 25-year life for five years to use during a construction project. After the contract ends, the city must return the equipment to the lessor but has not guaranteed any residual value. The lease requires five annual payments of $40,000 per year beginning immediately. Oliver uses its own incremental borrowing rate of 10 percent per year because it does not know the implicit interest rate the lessor is charging. The present value of a $40,000 annuity due for five years at an annual interest rate of 10 percent is $166,795 (rounded).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
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