On Jan. 1, Year 1, NextLessee Inc. leases equipment from NextLessor Corp. for a 3-year lease...

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On Jan. 1, Year 1, NextLessee Inc. leases equipment from NextLessor Corp. for a 3-year lease term for $28,000 annual amounts to be paid at the END of each year. The lease is noncancelable. The useful life of the equipment is 10 years. The equipment will be returned to NextLessor Corp. at the end of the 3 years. The fair value of the equipment was $195,000 at the beginning of the lease term. Assume any residual value is unguaranteed so can be ignored for completion of this problem. Assume an interest rate of 9%. a. What are the inputs into the app to determine present value for the 90% test? (Be sure to label them.) What is that present value? b. From the Lessee's standpoint, what type of lease is this? Why? c. From the Lessor's standpoint, what type of lease is this? Why? On Jan. 1, Year 1, NextLessee Inc. leases equipment from NextLessor Corp. for a 3-year lease term for $28,000 annual amounts to be paid at the END of each year. The lease is noncancelable. The useful life of the equipment is 10 years. The equipment will be returned to NextLessor Corp. at the end of the 3 years. The fair value of the equipment was $195,000 at the beginning of the lease term. Assume any residual value is unguaranteed so can be ignored for completion of this problem. Assume an interest rate of 9%. a. What are the inputs into the app to determine present value for the 90% test? (Be sure to label them.) What is that present value? b. From the Lessee's standpoint, what type of lease is this? Why? c. From the Lessor's standpoint, what type of lease is this? Why?

Answer rating: 100% (QA)

SOLUTION a To determine the present value for the 90 test we need to calculate the present value of ... View the full answer