On January 1, 2017, Monty Corporation signed a 5-year noncancelable lease for a

Question

On January 1, 2017, Monty Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Monty to make annual payments of $8,148 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $5,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Monty uses the straight-line method of depreciation for all of its plant assets. Monty's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. Click here to view factor tables (b) Your answer is incorrect. Try again. Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971.) The present value of the minimum lease payments 33414

Explanation / Answer

Present value of minimum lease payment = Annual payment *present value of annuity due

= 8148*4.10245

Present value of minimum lease payment = 33427

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