Answer:
Dr Right of use asset 59,007.60
Cr Lease liability 59,007.60
Explanation:
Variable lease payments are generally not included as right of use asset or lease liability. Even though a 60% possibility exists that an additional $5,000 will be paid, they are not based on an index and are not disguised payments (only two exceptions to this rule).
Annual lease payments = $12,000
PV annuity factor, 6%, 6 periods = 4.9173
PV of lease payments = $12,000 x 4.9173 = $59,007.60
In most cases for this type of questions you would have to use a calculator, since this is not a value that can be approximated. Do you have an inverse normal function on your graphical calculator?
Answer:
The answer is option (C). The firm's required rate of return=11.95%
Explanation:
The required rate of return can be expressed using the formula below;
RRR=RFR+B(MRR)
where;
RRR=required rate of return
RFR=risk free return
B=beta
MRR=market rate of return
In our case;
RRR=unknown
RFR=4.25%
B=1.4
MRR=5.5%
This can be written as;
Required rate of return=risk free return+(beta×market rate of return)
replacing;
RRR=4.25%+(1.4×5.5)
RRR=(4.25%+7.7)=11.95%
The firm's required rate of return=11.95%