What is the company's lease payment for the last year is reduced to $150,000 instead? 2) What is the company's lease payment for the first five years are reduced to $150,000?
Company Co. leased equipment from a company. The lease is for 15 years, while the equipment has an expected life of 20 years. The equipment has a fair value of $2,000,000, held in inventory for $1,500,000, and the company must make annual payments of $180,000. However, as an incentive. the company's lease payment for the first year is reduced to $150,000. The rate implicit in the lease is 5%, which is unknown to the company; the company's incremental borrowing rate is 6%. The equipment will revert back to the company at the end of the lease and the lease has no bargain purchase option.
1) What is the company's lease payment for the last year is reduced to $150,000 instead?
2) What is the company's lease payment for the first five years are reduced to $150,000?
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