The Following Information Relates to a Lease Contract: Inception: 1/1/x1

question 49

Multiple Choice

The following information relates to a lease contract: Inception: 1/1/x1 Annual lease payments of $3,000 due each 12/31 beginning 12/31/x1
End of lease term: 1/1/x5
There are 4 lease payments in all Useful life of asset at inception: 10 yrs
Expected residual value at 1/1/x5: $6,000
Lessee is given option to purchase asset at 1/1/x5 for $1,000
Using an interest rate of 10%, what is the present value of minimum lease payments for t lessee at inception?

• A)$13,608
• B)$13,000
• C)$9,510
• D)$10,419
• E)$10,193

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Definitions:

Profit-Maximizing

The strategy by which an organization sets the price and amount of output to achieve the maximum profitability.

Market Price

The current price at which an asset or service can be bought or sold.

Perfectly Competitive Market

A hypothetical market where all participants are price takers, and goods are perfect substitutes, leading to an efficient distribution of resources.

Average Variable Cost

The average amount of variable cost per unit, calculated by dividing total variable costs by the quantity of output.