What is the total decrease in net income that Zebra will report in Year One?

On January 1, Year One, Alexander Company buys a warehouse for $800,000 and is in the process of leasing it to Zebra Company for four out of its five year life. It has no expected residual value after five years. Alexander normally has an implicit rate of 10 percent whereas Zebra has an incremental borrowing rate of 8 percent. Assume the payment amounts have been computed appropriately. For these computations assume that the present value of $1 in four years at 8 percent annual interest is .72 and at 10 percent is .66. Assume that the present value of an ordinary annuity of $1 for four years at 8 percent annual interest is 3.27 and at 10 percent is 3.10. Assume that the present value of annuity due of $1 for four years at 8 percent annual interest is 3.55 and at 10 percent is 3.46. Payments are set to be $300,000 per year with the payments to begin immediately. No residual value is assumed at the end of the lease and there is no option to buy the warehouse. It is a sales type lease. What is the total decrease in net income that Zebra will report in Year One?
$287,510
$296,570
$315,620
$327,450

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