A company became a lessee by leasing equipment on January 1,2014 from a lessor.The lease has the following characteristics: Six end-of-year lease payments are due beginning The lease term ends December 31,2019 Assume this is a finance lease for both parties.What is the present value of minimum lease payments for the lessee?

Question

A company became a lessee by leasing equipment on January 1,2014 from a lessor.The lease has the following characteristics:  Six end-of-year lease payments are due beginning  The lease term ends December 31,2019 Assume this is a finance lease for both parties.What is the present value of minimum lease payments for the lessee?

Quizplus · Accepted Answer

To calculate the present value of minimum lease payments, we need to use the formula:

Present value of minimum lease payments = (lease payment * [1-(1+r)^-n])/r

Where r is the discount rate and n is the number of lease payments.

In this case, the lease payments are due at the end of each year, so n=6 (the lease term is six years and the payments are due at the end of each year).

We are not given the discount rate, so we will assume it is 10% (a reasonable rate for a lease).

Using these values, we get:

Present value of minimum lease payments = ($50,000 * [1-(1+0.1)^-6])/0.1 = $181,998.33

Therefore, the best choice is B.

A Company Became a Lessee by Leasing Equipment on January