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Determine the present value of the minimum lease payments

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Reference no: EM132965301

Pronghorn Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $204,000.

The terms of the lease are as follows:

  • The lease term begins on January 1, 2019, and runs for 5 years.
  • The lease requires payments of $44,875 at the beginning of each year starting January 1, 2019.
  • At the end of the lease term, the equipment is to be returned to the lessor.
  • Lantus' implied interest rate is 5%, while Pronghorn's borrowing rate is 6%. Pronghorn uses straight-line depreciation for similar equipment. The year-end for both companies is December 31.

Problem 1: Determine the present value of the minimum lease payments.

Reference no: EM132965301

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