Name
Section
Solution
Homework Quiz—5
1.
ABC Company (the
lessee
) entered into a 10year capital lease with XYZ Products (
lessor
).
Annual rental payments are $50,000 with the first payment due at June 1, 2010.
ABC’s
incremental borrowing rate is 11% and ABC
does
not
know the implicit interest rate set by the
lessor (10%).
At the end of the lease, XYZ will transfer legal title of the leased asset to ABC.
The
leased asset’s residual value is zero.
The executory costs are $3,000 per year, payable annually on June 1 beginning in 2010, and are for
machine adjustment services provided by the lessor’s engineering staff.
You have the following interest rate data:
Present value
ordinary annuity
, n=10, i=10% is:
6.14457
Present Value
ordinary annuity
, n=10, i=11% is: 5.88923
Present value
annuity due
, n=10, i=10% is: 6.75902
Present value
annuity due
, n=10, i=11% is: 6.53705
1a
.
In the space below calculate the present value of ABC’s minimum lease payments at 6/1/10.
Please put the present value in the box below.
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 Winter '08
 Staff
 Management, Depreciation, Finance lease

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