Swanson Corporation is leasing a machine from Gray, Inc. Swanson's incremental borrowing rate is 13%. The prime rate of interest is currently 7%. Gray's implicit rate in the lease is 9%; Swanson does not know this rate. At what interest rate should the minimum lease payments be computed?
A) 7%
B) 9%
C) 11%
D) 13%

Question

Quizplus · Accepted Answer

Swanson should use its incremental borrowing rate of 13% to compute the minimum lease payments since it does not know Gray's implicit rate.

Swanson Corporation Is Leasing a Machine from Gray, Inc