Sliver Limited leases an equipment from Tesco Limited under the following lease terms. The lease term is 4 years, non-ca

[answerhappygod]

Sliver Limited Leases An Equipment From Tesco Limited Under The Following Lease Terms The Lease Term Is 4 Years Non Ca 1 (113.66 KiB) Viewed 32 times

Sliver Limited leases an equipment from Tesco Limited under the following lease terms. The lease term is 4 years, non-cancelable and requires equal annual rental payments at the beginning of each calendar year starting 1 January 2021. Tesco Limited wants a guarantee that the residual value of the equipment at the end of the lease is at least $26,000. Sliver Limited agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $10,000 at the end of the lease term. The cost of an equipment is $230,000 and the fair value of the equipment is $350,000 on 1 January 2021. The equipment has an economic life of 5 years. Both companies depreciate all their equipment on a straight-line basis. Tesco Limited wants to earn a return of 6% on the lease and collectability of the payment is probable. Sliver Limited's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Required: (Round all amounts to the nearest dollar.) (a) Calculate the amount of annual lease payment required by the lessor. (2 marks) (b) Discuss the nature of this lease transaction from the viewpoint of the lessor. (3 marks)