Question

Please do it in Excel and show all the steps for the five questions. Also, number each question.

eKhaleesi") leases dragonglass weapons to customers. She gains a loyal ause dragong lass is of limited supply but high demand due to its tollowing of customers bec usefulness for the upcoming winter. Further, Khaleesi tends to offer more terms than competitors offering substitutive products (e.g.. Lannister, C favorable financing was recently approached by the Lords of the North, Inc. "the North") which is interested in leasing a substantial stock of weapons over a potentially lengthy per North has indicated a willingness to pay any rate that Khaleesi Corporation dragonglass prod transactions. The North's management are a very noble group, so payments are reas ucts, but generally receives an interest rate of12% on all other borrowing assured. Further, there are no material cost uncertainties. Khaleesi has gathered nvited you to provide financial council. Khaleesi's board has proposed several alternative sets of its council to discuss entering into such a contract with the North and has be lease terms (below) and would like you determine what the North's annual payments will under each scenario, if payments are made at the beginning of the period. Fair value of weapons to be leased Lease Term Useful Life of leased assets Lessee/Lessor interest rate Residual Value (guaranteed) $489.450 11 years 13 years 6% So $489,450 11 years 13 years 6% $24,350 $489.450 11 years 13 years 890 $24.350 Food for thought: What happens to the payment when the leaseI happens to the payment when term includes a guaranteed residual value? Food for thought: What the rate of return increases?

Answer 1

Solution:

Annual lease Payments
	Scenario A	Scenario B	Scenario C
FV of the asset ($)	489450	489450	489450
Residual Value ($)	0	24350	24350
Interest rate	0.06	0.06	0.08
Lease Term (years)	11	11	11
PV Factor	8.36	8.36	7.71
PV at the end of term	0.558	0.558	0.463
Annual payment	58546.651	58546.651	63482.49
Residual Payment	0	13587.3	11274.05
Lease payment	58546.651	44959.351	52208.44

Year	PV Factor (6%, 11 yrs.)	PV Factor (8% ,11 yrs.)
0	1.000	1.000
1	0.943	0.926
2	0.890	0.857
3	0.840	0.794
4	0.792	0.735
5	0.747	0.681
6	0.705	0.630
7	0.665	0.583
8	0.627	0.540
9	0.592	0.500
10	0.558	0.463
	8.360	7.710

Lease equipment under capital leases	489450
Obligation under capital leases		430903.05
Cash		58546.95