Question
On January 1, Year 1, Lessor Corp. entered into a contract to lease equipment to Lessee Co. with the following terms: The lease term is
On January 1, Year 1, Lessor Corp. entered into a contract to lease equipment to Lessee Co. with the following terms:
The lease term is five years, with payments due on the first day of the year.
The first payment is due on January 1, Year 1.
The equipment has a fair market value of $300,000 on January 1, Year 1.
Lessee Co. has an incremental borrowing rate of 9% and Lessee Co. is aware of Lessor Corp.'s rate of 10%.
The equipment has an estimated useful life of six years.
Both the lessor and the lessee use straight-line amortization.
The annual lease payment equals $70,733, which includes a $4,000 reimbursement to Lessor Corp. for insurance costs paid by the lessor to the insurance company.
Both Lessor Corp. and Lessee Co. report under ASPE.
What is the present value of the minimum lease payments for this lease?
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