In: Accounting
Lease type: Finance lease. Annual lease payments: $100,000 are payable at the beginning of each year. Lease term: 8 years. Lessor’s and lessee’s interest rate: 12%. Guaranteed residual value by the lessee: $60,000. Estimated residual value at the end of the lease term: $40,000.
Determine the lessee’s Right-of-Use Asset.
a. |
580,609 |
|
b. |
None of the answers. |
|
c. |
0 |
|
d. |
560,415 |
|
e. |
564,454 |
Right of Use Asset = Present value of lease payment + Present value of Guranteed residual value. | |||||
Present value of lease payment | |||||
Present Value Of An Annuity Due | |||||
=C + C*[1-(1+i)^-(n-1)]/i] | |||||
Where, | |||||
C= Cash Flow per period | |||||
i = interest rate per period | |||||
n=number of period | |||||
= $100000+100000[ 1-(1+0.12)^-(8-1) /0.12] | |||||
= $100000+100000[ 1-(1.12)^-7 /0.12] | |||||
= $100000+100000[ (0.5477) ] /0.12 | |||||
= $556375.65 | |||||
Prsent value of guaranteed residual value | |||||
PV= FV/(1+r)^n | |||||
Where, | |||||
FV= Future Value | |||||
PV = Present Value | |||||
r = Interest rate | |||||
n= periods in number | |||||
= $60000/( 1+0.12)^8 | |||||
=60000/2.47596 | |||||
= $24232.99 | |||||
Total = $556375.65+24232.99 | |||||
=$580609 | |||||