Bourne Corporation Has an Asset with a Fair Market Value

question 22

Multiple Choice

Bourne Corporation has an asset with a fair market value of $ 400,000 that it wants to lease. Frank's wants to recover its net investment in the leased asset and earn a 5% return. The asset will revert back to Frank's at the end of a 5-year lease term. If Frank's charges rent annually at the beginning of the year, what should amount should the annual rent be (rounded to whole dollars) ?

• A) $ 20,000
• B) $ 21,997
• C) $ 87,989
• D) $ 92,400

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Definitions:

Consideration

The benefit, interest, or value that must be exchanged between parties in a contract to make it legally binding.

Liable

Legally responsible for an action or outcome, often involving the obligation to make restitution or compensation.

Voluntary Basis

Participation or action taken by an individual or entity without coercion, typically without expectation of payment.

Consideration

An item of worth traded between entities within a contractual agreement, rendering the contract enforceable by law.