ORIE 350 Lecture 12 - ORIE 350 Lecture 12 3. GMI industries...

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350,000 Leased assets(A) 950,000 ORIE 350 Lecture 12 3. GMI industries Leases a truck 4 year lease 4% interest at the end of each month, 499.77 2434.75 due at the lease signing i nom = 5.9 % Purchase option at the end of lease for 9,800 Lease checklist Ownership transfer: No Bargain purchase option: No Lease term > 75 of useful life: calculate PV of lease payments> 90% of fair value: calculate PV = 2434.75 + 499.77[1-(1+0.059/12) -47 / (0.059/12)] = 2434.75 + 20,927.03 = 23, 361.78 Price of truck today = PV of all payments + PV of purchase option PV of purchase option= FV/(1+i) n = 9800/ (1+0.059/12) 48 =7,744.33 Price = 23, 361.78+7,744.33= 31,106.11 Present value of lease payment / Price= 23, 361.78/31,106.11= 0.751<90%: NO Assume salvage value = 2,000 Annual depreciation = 31,106-9,800/4= 5,326.50 Useful life= 31,106-2,000/ 5,326.50= 5.46 years 4/5.46= 0.732: NO a. Operating lease b. Oct 31
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ORIE 350 Lecture 12 - ORIE 350 Lecture 12 3. GMI industries...

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