Calculations PVAD and PV and others, please. Henri Retail Stores is negotiating
ID: 2482434 • Letter: C
Question
Calculations PVAD and PV and others, please. Henri Retail Stores is negotiating three leases for store locations. In all three leases, the interest rate is 12%. Each building will have an economic useful life of 30 years. In all three leases, the buildings will revert back to the lessor at the end of each lease. The purchase price for each building is listed as an alternative to leasing. Required: Determine whether each of the three leases should be classified by Henri (the lessee) as an operating lease or a capital lease. Show your calculations and reasons to support your answers.Explanation / Answer
Details Location A Location B Location C Building Life in years 30 30 30 Lease term 26 20 15 Lease Term as % of useful life 86.67% 66.67% 50.00% a Lease Term as % of useful life > 75% Yes No No FMV 13,000,000 12,000,000 15,000,000 90% of FMV 11,700,000 10,800,000 13,500,000 Lease payments 1500000 at the end of each yr 1300000 at the beginning of each year 1700000 at the beginning of each year PV of Lease payments @12% =1500000*7.896=11844000 =1300000+1300000*7.37 =1500000+1500000*6.63 PV of Lease payments value 11,844,000 10,881,000 11,445,000 b Is PV of Lease payment > 90% of FMV ? Yes Yes No c Bargan Purchase option no no no d Transfer of property at the end of lease period ? no no no Out of conditions a,b,c,d , Location A & B has met two and one conditions of Capital lease, So Loaction A & B will be treated as Capital Lease.
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