For the following lease,determine the minimum lease payments for the lessee. $\begin{array}{|l|l|}
\hline \text { Annual lease payment at the end of the end } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline \text { Bargain purchase option } & 5,000\\hline
\end{array}$

Question

For the following lease,determine the minimum lease payments for the lessee. $\begin{array}{|l|l|}
\hline \text { Annual lease payment at the end of the end } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Unguaranteed residual value } & 15,000 \
\hline \text { Bargain purchase option } & 5,000\\hline 
\end{array}$

Quizplus · Accepted Answer

The minimum lease payments for the lessee are $86,502. This is calculated as follows:Present value of the annual lease payments = $22,000 x (1 - 1/(1 + 0.08)^5)/0.08 = $82,353Present value of the unguaranteed residual value = $15,000 x 1/(1 + 0.08)^5 = $11,149Present value of the bargain purchase option = $5,000 x 1/(1 + 0.08)^5 = $3,000Minimum lease payments = $82,353 + $11,149 + $3,000 = $86,502

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