Splish Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Blossom Airlines for a period of 10 years. The normal selling prick of the equipment is $262,235, and its unguaranteed residual value at the end of the lease term is estimated to be $21,000. Blossom will pay annual payments of $37,600 at the beginning of each year. Splish incurred costs of $184,300 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Splish has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 10%. Blossom Airlines has an incremental borrowing rate of 10%.

Splish Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Blossom Airlines for a period of 10 years. The normal selling prick of the equipment is $262,235, and its unguaranteed residual value at the end of the lease term is estimated to be $21,000. Blossom will pay annual payments of $37,600 at the beginning of each year. Splish incurred costs of $184,300 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Splish has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 10%. Blossom Airlines has an incremental borrowing rate of 10%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 6P

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