Patsy Co. and Philip Inc. sign a lease agreement dated January 1, 2020. The lease agreement specifies that Patsy (lessor) will grant right-of-use to Philip (lessee) of one of its machines that is not of a specialized nature. The lease term is non-cancelable and has a 3-year term. On January 1, 2020, the machine has a cost and fair value of $240,000, an estimated economic life of five years, and a residual value at the end of the lease of $48,000 (unguaranteed). The machine reverts to Patsy at the end of the lease term and the lease contains no renewal options. Patsy used a 6 percent rate when calculating the lease payments, and Philip is aware of this rate. Philips incremental rate is 8%. The payments are to be made at the beginning of the year with the first payment on January 1, 2020.

Use the following PV factors:

PV ANNUITY DUE, 3 PERIOD, 6% 2.83339

PV ANNUITY DUE, 3 PERIOD, 8% 2.78326

PV ORDINARY ANNUITY, 3 PERIOD, 6% 2.67301

PV ORDINARY ANNUITY, 3 PERIOD, 8% 2.57110

PV SINGLE SUM, 3 PERIODS, 6% .83962

PV SINGLE SUM, 3 PERIOD, 8%

What is the annual payment Phillip will make for the term of the lease

1. 70,480.32

2. 84.704.19

3. 72,539.45

4. 72,709.13