Refer to the following lease amortization schedule. The 10 payments are made annually starting with...
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Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.
Payment
Cash Payment
Effective Interest
Decrease in balance
Outstanding Balance
87,867
1
13,000
0
13,000
74,867
2
13,000
7,487
5,513
69,354
3
13,000
6,935
6,065
63,289
4
13,000
6,329
6,671
56,618
5
13,000
5,662
7,338
49,280
6
13,000
4,928
8,072
41,208
7
13,000
4,121
8,879
32,329
8
13,000
3,233
9,767
22,562
9
13,000
?
?
?
10
13,000
?
?
?
What is the effective annual interest rate? (Round final answer to the nearest whole percentage.)
Multiple Choice
a) 10%.
b) 8%.
c) 7%.
d) 12%.
Answer & Explanation
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