a. Calculation of Present Value of the minimum lease payments from the viewpoint of lessor :- | |||||
Implicit rate of return (p.a.) | r | 7.50% | |||
Implicit rate of return (per semi-annual) | 7.50%/2 | 3.75% | |||
Lease term (years) | n | 4 | |||
No. of Semi-annual lease payments | 4*2 | 8 | |||
Semi-annual lease payment | PMT | $ 16,000 | |||
Unguaranteed Residual Value | $ 15,000 | ||||
Note: | Assuming lease payments are made at the end of semi annual period | ||||
Present Value of 8 semi-annual lease payments | = | $16,000 | × | PVAD (3.75%,8) | |
= | $16,000 | × | 6.802796 | ||
= | $108,845 | ||||
Present value of the lease payments | = | $108,845 | |||
Present Value of Unguaranteed Residual Value | = | $15,000 | × | PV (3.75%,8) | |
= | $15,000 | × | 0.744895 | ||
= | $11,173 | ||||
Present Value of the minimum lease payments from the viewpoint of lessor | = | Present value of the lease payments | + | Present Value of Unguaranteed Residual Value | |
= | $108,845 | + | $11,173 | ||
= | $120,018 | ||||
b. Calculation of Present Value of the minimum lease payments from the viewpoint of lessee :- | |||||
Incremental borrowing rate (p.a.) | r | 7.00% | |||
Incremental borrowing rate (per semi-annual) | 7.00%/2 | 3.50% | |||
Lease term (years) | n | 4 | |||
No. of Semi-annual lease payments | 4*2 | 8 | |||
Semi-annual lease payment | PMT | $ 16,000 | |||
Note: | Assuming lease payments are made at the end of semi annual period | ||||
Present Value of 8 semi-annual lease payments | = | $16,000 | × | PVAD (3.50%,8) | |
= | $16,000 | × | 6.873956 | ||
= | $109,983 | ||||
Present value of the lease payments | = | $109,983 | |||
Present Value of the minimum lease payments from the viewpoint of lessor | = | Present value of the lease payments | |||
= | $109,983 | ||||
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Scenario 1: Here are some inputs for a noncancellable lease arrangement: .Semi-annual lease payment: $16,000 (used to determine PMT) Implicit rate: 7.5% (used to determine l/Y maybe?) incremental bor...