The Deluxe Corporation has just signed a 144-month lease on an asset with a 17-y

Question

The Deluxe Corporation has just signed a 144-month lease on an asset with a 17-year life. The minimum lease payments are $1,100 per month ($13,200 per year) and are to be discounted back to the present at a 7 percent annual discount rate. The estimated fair value of the property is $155,000. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the lease is set up as an annual lease.

Calculate the lease period as a percentage to the estimated life of the leased property. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Calculate the present value of lease payments as a percentage to the fair value of the property. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

The Deluxe Corporation has just signed a 144-month lease on an asset with a 17-year life. The minimum lease payments are $1,100 per month ($13,200 per year) and are to be discounted back to the present at a 7 percent annual discount rate. The estimated fair value of the property is $155,000. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the lease is set up as an annual lease.

Explanation / Answer

a)

Lease period percentage = 144 / (17*12) = 70.59%

b)

Lease tenure = 144/12 = 12

Present value factor (r = 7%, n = 12) = PV(7%,12,-1) = 7.9427

Pv of lease payments = 7.9427*13200 = 104843.46

PV of lease payment percentage = 104843.46 / 155000 = 67.64%

3)

Opearation lease

since it failed conditions for capital lease ( Lease period should be at least 75%, The present value of the minimum lease payments required under the lease is at least 90% )

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.