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What is the cost of the leased property to average

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    Assignment ID: FG133135353

    Question – On January 1, 2016, Average Leasing Company entered into a direct financing lease with a lessee, Lenny Company. The lease agreement calls for five equal annual payments of $75,000 at the beginning of each year with the first payment due on January 1, 2016. The leased property has an estimated residual value of $10,000, which Lenny does not guarantee. The property remains the property of Average at the end of the lease term. Average desires a 12% rate of return. Present value factors for a 12% interest rate are as follows:

    Present value of $1 for n = 1 0.892857

    Present value of $1 for n = 5 0.567427

    Present value of an ordinary annuity for n = 5 3.604776

    Present value of an annuity due for n = 5 4.037349

    Required – What is the cost of the leased property to Average (round the answer to the nearest dollar)?

    A. $276,032

    B. $302,801

    C. $308,475

    D. $270,358

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