136C Notes 2_8_11

136C Notes 2_8_11 - 2/8/11: 136C Notes -Discount rate for...

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2/8/11: 136C Notes ----------------------------------------------------------- Discount rate for the Lessee: Implicit Interest Rate vs Incremental Borrowing Rate If you know the FMV of the property now and at the end, as well as the term of the loan and the payment… you can figure out the implicit interest rate in the lease. *Use the lowest one. *Understand which one is right and which one is wrong… will probably be on the test!! ----------------------------------------------------------- Exercise 21-8 (homework due today) Lease is 5 years, asset life is 10 (fails test 3) Bargain purchase offer… passes test 2. Still need PV of minimum lease payments. PV Minimum Lease Payments PV Factor PV Regular payment 18,829 $ x Contingent rental paymts - $ (Dont include in decision) - Executory Costs - $ 18,829 $ PVAD(10%,5p) 78,516 $ + BPO 4,000 $ PV$(1%,5p) 2,484 $ [Factor = .62092] + Guaranteed Residual - $ - $ Minimum Lease Paymts 81,000 $ (=)PV Min Lease Paymts 5/1/10 Leased Asset 81,000 $ Oblig. Under Cap Lease
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136C Notes 2_8_11 - 2/8/11: 136C Notes -Discount rate for...

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