Question
The Deluxe Corporation has just signed a 168-month lease on an asset with a 19-year life. The minimum lease payments are $2,400 per month ($28,800
The Deluxe Corporation has just signed a 168-month lease on an asset with a 19-year life. The minimum lease payments are $2,400 per month ($28,800 per year) and are to be discounted back to the present at a 10 percent annual discount rate. The estimated fair value of the property is $220,000. Use Appendix D http://lectures.mhhe.com/connect/0077861612/Appendix_D.jpg for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the lease is set up as an annual lease. |
a. | Calculate the lease period as a percentage to the estimated life of the leased property. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
Lease period percentage | % |
b. | Calculate the present value of lease payments as a percentage to the fair value of the property. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) |
PV of lease payment percentage | % |
c. | Should the lease be recorded as a capital lease or an operating lease? (Use criteria 3 and 4 for a capital lease.) | ||||
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