If a leased asset has a negative residual value, for example, as a result of a statutory requirement to dispose of an asset in an environmentally sound manner, the lessee of the asset could reasonably expect to pay a lower lease rate because the asset does not have a positive residual value.

Question

Quizplus · Accepted Answer

The lease rate is determined by a variety of factors including the cost of the asset, the lease term, interest rates, and expected residual value. A negative residual value could actually lead to a higher lease rate because the lessor may seek to recover the expected cost of disposal or any negative value at the end of the lease term through higher periodic payments.

If a Leased Asset Has a Negative Residual Value, for Example