1. On January 1, 2021, Cottrell also entered into a 5-year lease of a small warehouse. The...
Question:
1. On January 1, 2021, Cottrell also entered into a 5-year lease of a small warehouse. The lease requires payments of $41,000 per year. The first payment is to be made on 1/1/2021. The rest of the annual payments will be made on 12/31 beginning with 12/31/2021. The warehouse probably has a useful life of 20 years or more, so Cottrell could try to renegotiate a new lease at the end of the lease term if the space is still adequate, but they are under no obligation to do so and the lessor has made no promises regarding a new lease. While there is nothing unique about this warehouse, Cottrell was happy to lease the space because the purchase of a similar warehouse would probably cost at least $800,000. Cottrell paid a $4,000 commission to the agent who found the warehouse and negotiated the initial lease with a 6% implicit rate.
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