For the following lease,determine the minimum lease payments for the lessee. $$\begin{array} { | l | l | }
\hline \text { Annual lease payment at the end of the end } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline
\end{array}$$
A)83,400
B)92,711
C)98,048
D)102,304

Question

For the following lease,determine the minimum lease payments for the lessee. $$\begin{array} { | l | l | } 
\hline \text { Annual lease payment at the end of the end } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline
\end{array}$$
A)83,400
B)92,711
C)98,048
D)102,304

Quizplus · Accepted Answer

To find the minimum lease payments, we need to use the formula:

Minimum lease payments = Present value of lease payments + Present value of guaranteed residual value

Using the information provided in the lease, we can calculate the present value of the lease payments as follows:

- Lease payments: $22,000 per year for 5 years = $110,000 total
- Discount rate: 8%
- Payment timing: annual
- Using the present value of an ordinary annuity formula, we can calculate the present value of the lease payments as $83,400.

Next, we need to calculate the present value of the guaranteed residual value, which is $0 in this case since the lease does not contain a guaranteed residual value.

Therefore, the minimum lease payments for the lessee are $83,400. Option A is the correct answer.

For the Following Lease,determine the Minimum Lease Payments for the Lessee