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Answer the following question: Taylor-Limited signed a lease for a vehicle that had an expected economic life of 8 years and a fair value of

Answer the following question:

Taylor-Limited signed a lease for a vehicle that had an expected economic life of 8 years and a fair value of $18,000. The lessor is the leasing subsidiary of a national car manufacturer. The terms of the lease are as follows:

  • The lease term begins on 1 January 20X2 and runs for 5 years. The lease requires payments of $5,800 each 1 January, including $1,700 for maintenance and insurance costs.
  • At the end of the lease term, the lease is renewable for three one-year periods at $500 per year. The normal rental costs for a similar used vehicle would be approximately double this amount.
  • At the end of the lease term the vehicle reverts to the lessor.

Taylor-Limited does not know the interest rate implicit in the lease from the lessor's perspective but has an incremental borrowing rate of 12%. Taylor-Limited has a 31 December year-end and uses straight-line depreciation for all assets.

Using excel (show formula), determine the PV? Show both numbers separately. Explain as well.

Answer: $16,553 + $763 = $17,316

Example: =-PV(12%,5,4100,,1)

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