For the following lease,determine the minimum present value calculation for the lessee.
$$\begin{array} { | l | l | }
\hline \text { Annual payment (due at end of year) } & \$ 25,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & \% \% \
\hline \text { Implicit rate (known to lessee) } & 6 \% \
\hline \text { Executory costs } & 2,000 \
\hline
\end{array}$$
A)94,305
B)96,884
C)102,505
D)105,309

Question

For the following lease,determine the minimum present value calculation for the lessee.
$$\begin{array} { | l | l | } 
\hline \text { Annual payment (due at end of year) } & \$ 25,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & \% \% \
\hline \text { Implicit rate (known to lessee) } & 6 \% \
\hline \text { Executory costs } & 2,000 \
\hline
\end{array}$$
A)94,305
B)96,884
C)102,505
D)105,309

Quizplus · Accepted Answer

To calculate the minimum present value, we need to find the present value of lease payments using the lessee's incremental borrowing rate. By using a financial calculator or spreadsheet, we find that the present value of lease payments is $96,884. Therefore, the best choice is B.

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