Montevallo Corporation leased equipment from Folio Company. The lease term is 10 years, requires payments of $25,000

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Montevallo Corporation leased equipment from Folio Company. The lease term is 10 years, requires payments of $25,000 at the end of each year, and contains a bargain purchase option. At the end of the lease Montevallo has an option to pay $4,000 (which is much less than the estimated fair value at that time) to purchase the equipment. The equipment has a fair value at the inception of the lease of $175,000 and an estimated useful life of 20 years. The lease agreement stipulates that the Folio Company receive a rate of return of 8% each year, which is lower than Montevallo’s incremental borrowing rate. Calculate the present value of the minimum lease payments.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  answer-question

Intermediate Accounting

ISBN: 978-0324659139

11th edition

Authors: Loren A. Nikolai, John D. Bazley, Jefferson P. Jones

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