For the following lease,determine the minimum present value calculation for the lessee.
$$\begin{array} { | l | l | }
\hline \text { Annual payment (due at end of year) } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Executory costs } & 5,000 \
\hline
\end{array}$$
A)64,443
B)67,876
C)83,397
D)87,840

Question

For the following lease,determine the minimum present value calculation for the lessee.
$$\begin{array} { | l | l | } 
\hline \text { Annual payment (due at end of year) } & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental rate } & 10 \% \
\hline \text { Implicit rate (unknown to lessee) } & 8 \% \
\hline \text { Executory costs } & 5,000 \
\hline
\end{array}$$
A)64,443
B)67,876
C)83,397
D)87,840

Quizplus · Accepted Answer

The minimum present value calculation for the lessee is $64,443. This is calculated by taking the present value of the annual payments, plus the present value of the executory costs, and then subtracting the present value of the residual value. The present value of the annual payments is calculated by multiplying the annual payment by the present value factor for an annuity due. The present value of the executory costs is calculated by multiplying the executory costs by the present value factor for a single sum. The present value of the residual value is calculated by multiplying the residual value by the present value factor for a single sum.

For the Following Lease,determine the Minimum Present Value Calculation for the Lessee