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Metlock Company leases an automobile with a fair value of $11,845 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of
Metlock Company leases an automobile with a fair value of $11,845 from John Simon Motors, Inc., on the following terms: 1. Non-cancelable term of 50 months. Rental of $240 per month (at the beginning of each month). (The present value at 0.5% per month is $10,648.) 2. 3. Metlock guarantees a residual value of $1,240 (the present value at 0.5% per month is $966). Metlock expects the probable residual value to be $1,240 at the end of the lease term. 4. Estimated economic life of the automobile is 60 months. 5. Metlock's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.
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