Answer:
7.49%
Explanation:
n = Number of payment periods = 3
P = Total lease payment = Annual lease payment * Number of period = $20,700 * 3 = $62,100
FV = fair value of the machine = $50,000
Implicit rate = [($62,100 / $50,000)^(1 / 3)] - 1 = 0.0749, or 7.49%
Assuming the initial direct costs are deferred, the implicit rate is 7.49%.
Given information
3 annual lease payments of $20,700
The fair value of the machine is $50,000
Initial direct costs of $5,000 was incurred.
The number of payment periods = 3
Principal = Total lease payment
Total lease payment = Annual lease payment * Number of period
Total lease payment = $20,700 * 3
Total lease payment = $62,100
Implicit rate = [(Total lease payment/Fair value)^1/n] - 1
Implicit rate = [($62,100 / $50,000)^(1 / 3)] - 1
Implicit rate = [1.242^(1/3)] - 1
Implicit rate = 1.0749143613 - 1
Implicit rate = 0.0749143613
Implicit rate = 7.49%
Therefore, the implicit rate is 7.49%.
See similar solution here
brainly.com/question/24706070
