Khaleesi Corporation (“Khaleesi”) leases dragonglass weapons tocustomers. She gains a loyal following of customers becausedragonglass is of limited supply but high demand due to itsusefulness for the upcoming winter. Further, Khaleesi tends tooffer more favorable financing terms than competitors offeringsubstitutive products (e.g., Lannister, LLC).

Khaleesi was recently approached by the Lords of the North, Inc.(“the North”) which is interested in leasing a substantial stock ofweapons over a potentially lengthy period of time. The North hasindicated a willingness to pay any rate that Khaleesi Corporationdemands for its dragonglass products, but generally receives aninterest rate of 12% on all other borrowing transactions. TheNorth’s management are a very noble group, so payments arereasonably assured. Further, there are no material costuncertainties.

Khaleesi has gathered its council to discuss entering into sucha contract with the North and has invited you to provide financialcouncil. Khaleesi’s board has proposed several alternative sets oflease terms (below) and would like you determine what the North’sannual payments will be under each scenario, if payments are madeat the beginning of the period.

	A	B	C
Fair value of weapons to be leased	$365,760	$365,760	$365,760
Lease Term	11 years	11 years	6 years
Useful Life of leased assets	13 years	13 years	6 years
Desired rate of return	10%	10%	13%
Residual Value (guaranteed)	$0	$24,350	$24,350

Prepare a lease amortization schedule describing the pattern ofpayments and interest over the lease term for both Khaleesi and theNorth.