For the Following Lease,determine the Minimum Lease Payments for the Lessor

question 22

Multiple Choice

For the following lease,determine the minimum lease payments for the lessor. $$\begin{array} { | l | l | } \hline \text { Annual lease payment at the end of the end } & \$ 32,000 \\\hline \text { Lease term } & 5 \\\hline \text { Incremental rate } & 11 \% \\\hline \text { Implicit rate (knownto lessee) } & 9 \% \\\hline \text { Executory costs } & 10,000 \\\hline\end{array}$$

• A)81,310
• B)85,572
• C)118,269
• D)124,469

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, crucial in determining the value of investments.

Real Risk-free Rate

The theoretical return on an investment with zero risk, taking into account the effects of inflation, thus representing the true purchasing power of the investment return.

Expected Inflation

The anticipated rate at which the general level of prices for goods and services will rise over a period of time.