For the following lease,determine the minimum present value calculation for the lessee.
$$\begin{array} { | l | l | }
\hline \text { Annual payment (due at end of year) } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline
\end{array}$$
A)83,397
B)92,711
C)98,048
D)102,304

Question

For the following lease,determine the minimum present value calculation for the lessee.
$$\begin{array} { | l | l | } 
\hline \text { Annual payment (due at end of year) } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline
\end{array}$$
A)83,397
B)92,711
C)98,048
D)102,304

Quizplus · Accepted Answer

The minimum present value calculation for the lessee is $83,397. This is calculated by multiplying the annual payment by the present value factor for an annuity due of 5 years at 8%, and then adding the present value of the unguaranteed residual value.PV = $22,000 * 4.021 + $15,000 * 0.6806 = $83,397

For the Following Lease,determine the Minimum Present Value Calculation for the Lessee