Schrute Company leases an automobile with a fair value of $15,005 from Rainn, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $300 per month (at the beginning of each month). 3. Shrute guarantees a residual value of $1,800 (the present value at 0.5% per month is $1,403). The expected residual value is estimated to be $1,800 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Schrute’s incremental borrowing rate is 6% a year (0.5% a month). Rainn’s implicit rate is unknown. What is the present value of the lease payments to determine the lease liability? Present Value of an Annuity Due with 0.5% and 60 periods: 51.98419 Present Value of an Ordinary Annuity at 0.5% and 60 periods: 48.17337352 Present Value of an Annuity Due with 0.5% and 50 periods: 44.36350 Present Value of an Ordinary Annuity with 0.5% and 50 Periods:41.56644707
Schrute Company leases an automobile with a fair value of $15,005 from Rainn, Inc., on the following terms: 1. Non-cancelable term of 50 months. 2. Rental of $300 per month (at the beginning of each month). 3. Shrute guarantees a residual value of $1,800 (the present value at 0.5% per month is $1,403). The expected residual value is estimated to be $1,800 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Schrute’s incremental borrowing rate is 6% a year (0.5% a month). Rainn’s implicit rate is unknown. What is the present value of the lease payments to determine the lease liability? Present Value of an Annuity Due with 0.5% and 60 periods: 51.98419 Present Value of an Ordinary Annuity at 0.5% and 60 periods: 48.17337352 Present Value of an Annuity Due with 0.5% and 50 periods: 44.36350 Present Value of an Ordinary Annuity with 0.5% and 50 Periods:41.56644707
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Schrute Company leases an automobile with a fair value of $15,005 from Rainn, Inc., on the following terms:
| 1. | Non-cancelable term of 50 months. | |
| 2. | Rental of $300 per month (at the beginning of each month). | |
| 3. | Shrute guarantees a residual value of $1,800 (the present value at 0.5% per month is $1,403). The expected residual value is estimated to be $1,800 at the end of the lease term. | |
| 4. | Estimated economic life of the automobile is 60 months. | |
| 5. | Schrute’s incremental borrowing rate is 6% a year (0.5% a month). Rainn’s implicit rate is unknown. |
What is the present value of the lease payments to determine the lease liability?
Present Value of an
Present Value of an Ordinary Annuity at 0.5% and 60 periods: 48.17337352
Present Value of an Annuity Due with 0.5% and 50 periods: 44.36350
Present Value of an Ordinary Annuity with 0.5% and 50 Periods:41.56644707
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