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What is the present value of the lease payments

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Reference no: EM132437452

Question - Marin Company leases an automobile with a fair value of $16,513 from John Simon Motors, Inc., on the following terms:

1. Non-cancelable term of 50 months.

2. Rental of $340 per month (at the beginning of each month).

3. Marin guarantees a residual value of $1,420. Delaney expects the probable residual value to be $1,420 at the end of the lease term.

4. Estimated economic life of the automobile is 60 months.5.Marin's incremental borrowing rate is 6% a year (0.5% a month). Simon's implicit rate is unknown.

A. What is the present value of the lease payments to determine the lease liability?

B. Suppose that instead of $1,420, Marin expects the residual value to be only $500 (the guaranteed amount is still $1,420). How does the calculation of the present value of the lease payments change from part A?

Reference no: EM132437452

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