In 2024, Sheffield Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freightstorage facilities. The buildings were constructed on land owned by the company. On January 1, 2025, Sheffield took possessionof the leased property. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Advancerental payments of $772,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the leaseterm. Advance payments of $430,000 are due on January 1 for each of the last 10 years of the lease term. Sheffield has an optionto purchase all the leased facilities for $1 on December 31, 2044. At the time the lease was negotiated, the fair value of the truckterminals and freight storage facilities was pproximately $7,601,000. If the company had borrowed the money to purchase thefacilities, it would have had to pay 9% interest.Compute the present value of lease vs purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimalplaces, e.g. 458,581.)Present valueLeaseSheffield Enterprises shouldtoShould the company have purchased rather than leased the facilities?Purchasethe facilities.

Present Value -Present Value (PV) can be defined as the total of future investment returns…

In 2024, Sheffield Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and storage facilities. The buildings were constructed on land owned by the company. On January 1, 2025, Sheffield took poss of the leased property. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Advanc rental payments of $772,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the term. Advance payments of $430,000 are due on January 1 for each of the last 10 years of the lease term. Sheffield has an to purchase all the leased facilities for $1 on December 31, 2044. At the time the lease was negotiated, the fair value of th terminals and freight storage facilities was pproximately $7,601,000. If the company had borrowed the money to purcha facilities, it would have had to pay 9% interest. Compute the present value of lease vs purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to Od places, e.g. 458,581.) Lease Purchase

In 2024, Sheffield Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and storage facilities. The buildings were constructed on land owned by the company. On January 1, 2025, Sheffield took poss of the leased property. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Advanc rental payments of $772,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the term. Advance payments of $430,000 are due on January 1 for each of the last 10 years of the lease term. Sheffield has an to purchase all the leased facilities for $1 on December 31, 2044. At the time the lease was negotiated, the fair value of th terminals and freight storage facilities was pproximately $7,601,000. If the company had borrowed the money to purcha facilities, it would have had to pay 9% interest. Compute the present value of lease vs purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to Od places, e.g. 458,581.) Lease Purchase

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

In 2024, Sheffield Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight
storage facilities. The buildings were constructed on land owned by the company. On January 1, 2025, Sheffield took possession
of the leased property. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Advance
rental payments of $772,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease
term. Advance payments of $430,000 are due on January 1 for each of the last 10 years of the lease term. Sheffield has an option
to purchase all the leased facilities for $1 on December 31, 2044. At the time the lease was negotiated, the fair value of the truck
terminals and freight storage facilities was pproximately $7,601,000. If the company had borrowed the money to purchase the
facilities, it would have had to pay 9% interest.
Compute the present value of lease vs purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal
places, e.g. 458,581.)
Present value
Lease
Sheffield Enterprises should
to
Should the company have purchased rather than leased the facilities?
Purchase
the facilities.

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