Larkspur Company is negotiating to lease a piece of equipment to Crane, Inc. Crane requests that the leasebe for 9 years. The equipment has a useful life of 10 years. Larkspur wants a guarantee that the residualvalue of the equipment at the end of the lease is at least $4,000. Crane agrees to guarantee a residualvalue of this amount though it expects the residual value of the equipment to be only $2,000 at the end ofthe lease term.If the fair value of the equipment at lease commencement is $75,000, what would be the amount of theannual rental payments Larkspur demands of Crane, assuming each payment will be made at the beginningof each year and Larkspur wishes to earn a rate of return on the lease of 9%? (For calculation purposes, use 5decimal places as displayed in the factor table provided and round final answer to O decimal places, e.g. 5,275.)Click here to view factor tables.Amount of equal annual lease paymentsSA

• Explanation:1. Determine the present value of the residual value guarantee:• 𝑃𝑉=𝐹𝑉/(1+𝑟)𝑛•…

Answered: Larkspur Company is negotiating to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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Similar questions

Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
Metlock Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Metlock wants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. MTBA 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 $105,000, what would be the amount of the annual rental payments Metlock demands of MTBA, assuming each payment will be made at the beginning of each year and Metlock wishes to earn a rate of return on the lease of 10%? Amount of equal annual lease payments?
Marin Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Marin wants a guarantee that the residual value of the equipment at the end of the lease is at least $7,000. MTBA 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 $75,000, what would be the amount of the annual rental payments Marin demands of MTBA, assuming each payment will be made at the beginning of each year and Marin wishes to earn a rate of return on the lease of 6%?
Larkspur Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Larkspur wants a guarantee that the residual value of the equipment at the end of the lease is at least $7,000. MTBA 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 $115,000, what would be the amount of the annual rental payments Larkspur demands of MTBA, assuming each payment will be made at the beginning of each year and Larkspur wishes to earn a rate of return on the lease of 11%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.)Click here to view factor tables. Amount of equal annual lease payments $
Splish Brothers Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Splish Brothers wants a guarantee that the residual value of the equipment at the end of the lease is at least $ 4,000. MTBA 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 $ 115,000, what would be the amount of the annual rental payments Splish Brothers demands of MTBA, assuming each payment will be made at the beginning of each year and Splish Brothers wishes to earn a rate of return on the lease of 6%?
Teal Mountain Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Teal Mountain wants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. MTBA 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 $60,000, what would be the amount of the annual rental payments Teal Mountain demands of MTBA, assuming each payment will be made at the beginning of each year and Teal Mountain wishes to earn a rate of return on the lease of 6%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.)
Splish Brothers Inc. wishes to lease machinery to Sunland Company. Sunland wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $56,000, and Splish Brothers expects the machinery to have a residual value at the end of the lease term of $26,000. However, Sunland does not guarantee any part of the residual value. Sunland does expect that the residual value will be $54,000 instead of $26.000. What would be the amount of the annual rental payments Splish Brothers demands of Sunland, assuming each payment will be made at the end of each year and Splish Brothers wishes to earn a rate of return on the lease of 6%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to O decimal places, e.g. 5,275.) Click here to view factor tables. Amount of equal annual lease payments $
Splish Brothers Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $56,000, and Splish Brothers expects the machinery to have a residual value at the end of the lease term of $26,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $54,000 instead of $26,000. What would be the amount of the annual rental payments Splish Brothers demands of Thiensville, assuming each payment will be made at the end of each year and Splish Brothers wishes to earn a rate of return on the lease of 6%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to O decimal places, e.g. 5,275.) https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf
Kingbird Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $45,000, and Kingbird expects the machinery to have a residual value at the end of the lease term of $28,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $43,000 instead of $28,000.What would be the amount of the annual rental payments Kingbird demands of Thiensville, assuming each payment will be made at the end of each year and Kingbird wishes to earn a rate of return on the lease of 5%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.)Click here to view factor tables. Amount of equal annual lease payments $
Mequon Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $47,000, and Mequon expects the machinery to have a residual value at the end of the lease term of $30,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $45,000 instead of $30,000. What would be the amount of the annual rental payments Mequon demands of Thiensville, assuming each payment will be made at the end of each year and Mequon wishes to earn a rate of return on the lease of 6%?
Teal Mountain Inc. wishes to lease machinery to Sandhill Company. Sandhill wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $40,000, and Teal Mountain expects the machinery to have a residual value at the end of the lease term of $28,000. However, Sandhill does not guarantee any part of the residual value. Sandhill does expect that the residual value will be $38,000 instead of $28,000. What would be the amount of the annual rental payments Teal Mountain demands of Sandhill, assuming each payment will be made at the end of each year and Teal Mountain wishes to earn a rate of return on the lease of 6% ? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to O decimal places, e.g. 5,275.) Click here to view factor tables. Amount of equal annual lease payments $ 4,784
Teal Mountain Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $38,000, and Teal Mountain expects the machinery to have a residual value at the end of the lease term of $27,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $36,000 instead of $27,000. What would be the amount of the annual rental payments Teal Mountain demands of Thiensville, assuming each payment will be made at the end of each year and Teal Mountain wishes to earn a rate of return on the lease of 5%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.) Click here to view factor tables. Amount of equal annual lease payments %24

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