Koresh Company is in the business of leasing new sophisticated equipment As a

Koresh company is in the business of leasing new

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10.Koresh Company is in the business of leasing new sophisticated equipment. As a lessor, Koresh expects a 12% return on its net investment with payments made in advance. All leases are classified as direct financing leases. At the end of the lease term, the equipment’s ownership is not transferred to the lessee. On January 1, 2016, equipment is leased to a lessee with the following information: Cost of equipment to Koresh 5,250,000 Residual value unguaranteed 600,000 Useful life and lease term 8 years Implicit interest rate 12% Present value of an annuity due at 12% for 8 periods 5.564 Present value of 1 at 12% for 8 periods .404 1. What is the annual rent payable in advance? a. 900,000 b. 850,000 c. 1,000,000 d. 1,200,000 2. What is the total financial revenue from the direct financing lease transaction?
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