For a given leased asset using an operating lease,the rental expense will be $2,000 in the next period.The pretax cost of debt is 7.2 percent,and the asset has an expected life of six years.What is the estimated asset value in the current period?
A)$8,380
B)$8,640
C)$16,667
D)$21,127

Question

Quizplus · Accepted Answer

The correct answer is A.The present value of the rental expense is $2,000 / 0.072 = $27,778. The asset value is the present value of the rental expense divided by the number of years in the lease, which is $27,778 / 6 = $4,630. The estimated asset value in the current period is $4,630.

For a Given Leased Asset Using an Operating Lease,the Rental