At the beginning of its fiscal year, Café Med leased restaurant space from Crescent Corporation under a nine-year lease agreement. The contract calls for annual lease payments of $25,000 each at the end of each year. The building was acquired recently by Crescent at a cost of $300,000 (its fair value) and was expected to have a useful life of 25 years with no residual value. The company seeks a 10% return on its lease investments. What will be the effect of the lease on Café Med’s earnings for the first year (ignore taxes)?
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