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

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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 increase the lease rate because the lessor may seek to recover the anticipated cost of disposal or compliance with statutory requirements through higher lease payments.

If a Leased Asset Has a Negative Residual Value (E