Delaney leases an automobile with a fair value of P10,000 from Simon motors on the following terms: Non-cancellable term of 50 months Rental of P200 per month (at the beginning of each month). The PV factor at 0.5% per month is 44.3635. Delaney guarantees a residual value of P1,180 (the present value at 0.5% per month is P920). Delaney expects the probable residual value to be P1,180 at the end of the lease term. Estimated economic life of the automobile is 60 months. Delaney’s incremental borrowing rate if 6%. Simon’s implicit rate is unknown. Suppose that instead of P1,180, Delaney expects the residual value to be only P500. How much will be the PV of lease payments?
Delaney leases an automobile with a fair value of P10,000 from Simon motors on the following terms: Non-cancellable term of 50 months Rental of P200 per month (at the beginning of each month). The PV factor at 0.5% per month is 44.3635. Delaney guarantees a residual value of P1,180 (the present value at 0.5% per month is P920). Delaney expects the probable residual value to be P1,180 at the end of the lease term. Estimated economic life of the automobile is 60 months. Delaney’s incremental borrowing rate if 6%. Simon’s implicit rate is unknown. Suppose that instead of P1,180, Delaney expects the residual value to be only P500. How much will be the PV of lease payments?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Delaney leases an automobile with a fair value of P10,000 from Simon motors on the following terms:
- Non-cancellable term of 50 months
- Rental of P200 per month (at the beginning of each month). The PV factor at 0.5% per month is 44.3635.
- Delaney guarantees a residual value of P1,180 (the present value at 0.5% per month is P920). Delaney expects the probable residual value to be P1,180 at the end of the lease term.
- Estimated economic life of the automobile is 60 months.
- Delaney’s incremental borrowing rate if 6%. Simon’s implicit rate is unknown.
Suppose that instead of P1,180, Delaney expects the residual value to be only P500. How much will be the PV of lease payments?
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