Lessee Company On January 1 2010 Enters Into A 5 Year Non Cancelable Lease With

Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease, with two renewal options of one year each, for equipment having a estimated useful life of 8 years. Lessee’s incremental borrowing rate is 10%. Lessee uses the straight-line method to depreciate its assets. The lease contains the following provisions:1. Rental payments of $80,000 including 8,000 for property taxes, payable at the beginning of each six-month period.2. A termination penalty assuring renewal of the lease for a period of two years after expiration of the initial lease term.3. An option allowing the lessor to extend the lease one year beyond the last renewal exercised by the lessee.4. A guarantee by lessee that lessor will realize $40,000 from selling the asset at the expiration of the lease. However the actual residual value is $28,000.*What is the present value of the minimum lease payments?

Question:Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease, with two renewaloptions of one year each, for equipment having a estimated useful life of 8 years. Lessee’s…

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