A company is leasing equipment for five years for an annual payment of $10,000. With an interest rate of 6%, this provides a present value of $42,124. The total cost of the equipment is $40,000, and there is no residual value. Should the company record this as a finance lease under the present value test? O Yes, because the present value plus cost of equipment exceeds total annual payments. O Yes, because the present value exceeds the total cost of equipment. O No, because the present value plus cost of equipment exceeds total annual payments. O No, because the present value exceeds the total cost of equipment.

A company is leasing equipment for five years for an annual payment of $10,000. With an interest rate of 6%, this provides a present value of $42,124. The total cost of the equipment is $40,000, and there is no residual value. Should the company record this as a finance lease under the present value test? O Yes, because the present value plus cost of equipment exceeds total annual payments. O Yes, because the present value exceeds the total cost of equipment. O No, because the present value plus cost of equipment exceeds total annual payments. O No, because the present value exceeds the total cost of equipment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

I'm just having trouble with the first entry. See photos please.
One of the departments at Yolo Industries has entered into a 9 year lease for a piece of equipment. The annual payment under the lease will be $3,600, with payments being made at the beginning of each year. If the discount rate is 10%, the present value of the lease payments is closest to (Ignore income taxes.): Click here to view Exhibit 14B-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using the tables provided. (Round your intermediate calculations to 3 decimal places.) Multiple Choice $22,806 $10,07Y $22,105 $32,400
Munabhai
(Lessor Computations and Entries, Sales-Type Lease with Unguaranteed Residual Value) George Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to National Airlines for a period of 10 years. The normal selling price of the equipment is $278,072, and its unguaranteed residual value at the end of the lease term is estimated to be $20,000. National will pay annual payments of $40,000 at the beginning of each year and all maintenance, insurance, and taxes. George incurred costs of $180,000 in manufacturing the equipment and $4,000 in negotiating and closing the lease. George has determined that the collectibility of the lease payments is reasonably predictable,that no additional costs will be incurred, and that the implicit interest rate is 10%.Instructions(a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.(1) Lease receivable.(2) Sales price.(3) Cost of sales.(b) Prepare a 10-year…
Dunbar Corporation can purchase an asset for $35,000; the asset will be worthless after 12 years. Alternatively, it could lease the asset for 12 years with an annual lease payment of $4,538 paid at the end of each year. The firm's cost of debt is 9%. The IRS classifies the lease as a non-tax-oriented lease. What is the net advantage to leasing? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent. $
An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the 20 percent tax bracket and the lessee pays no taxes. For what range of lease payments does the lease have a positive NPV for both parties? Between $184,561 and $184,699 Between $179,650 and $184,699 Between $179,650 and $184,561 The range does not exist
A lease with a term of 4 years calls for annual payments of $3,400. The leased asset would cost $11,300 to buy and would be depreciated straight-line to a zero salvage value over the 4 years. The actual salvage value is negligible. The firm can borrow at a rate of 6 percent. What is the NPV of the lease relative to the purchase if the lessee's tax rate is 21 percent? X -$1,699 $197 -$399 -$194 $23,107
An asset costs $640,000 and will be depreciated in a straight-line manner over its four-year life. It will have no salvage value. The lessor can borrow at 6 percent and the lessee can borrow at 6 percent. If the lessor is in the 30 percent tax bracket and the lessee falls in 10 percent tax bracket. For what range of lease payments does the lease have a positive NPV for the lessee? Select an answer that is closest to yours. O Lease payment $166,167.55 O Lease payment > $234,483.02
please show the solution
You need a particular piece of equipment for your production process. An equipment - leasing company has offered to lease the equipment to you for $9 comma 700 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: LOADING... (the equipment has an economic life of 5 years). If your discount rate is 7.2 %, what should you do? \table[[Year 0, Year 1, Year 2, Year 3, Year 4, Year 5], [-$40, 200, $2,100, -$2,100,- $2,100, - $2,100, - $2,100 c Year 0 - $40,200 Year 1 - $2,100 Year 2 - $2,100 Year 3 Year 4 Year 5 - $2,100 - $2,100 - $2,100
Sagar
COL Inc. can either purchase an equipment for $650,000 or lease it from LEN Inc. by making 12 annual lease payments (paid at the beginning of the year) of $89,600. The equipment has CCA rate of 20% and will have salvage value of $56,000 at the end of year 12. Assume this asset is the only asset in the asset class for both companies. LEN’s borrowing cost is 11% which is 1% lower than COL’s. COL and LEN have tax rate of 15% and 40% respectively. a) Calculate the NPV of leasing for COL. b) Calculate the NPV of leasing for LEN. c) Calculate the maximum and minimum annual lease payment acceptable to COL and LEN respectively.