Find the present value of the minimum lease payments

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Reference no: EM132820669

Truck Leasing Company (TLC) buys trucks for leasing to various delivery companies. On April 1, 2020, TLC leases a truck to Showman Delivery Company. The cost of the truck of $244,875 and its fair value were the same. The lease payments stipulated in the lease are $35,000 per year in advance for the 10-year period of the lease. The expected economic life of the equipment is also 10 years. The title to the equipment remains in the hands of TLC at the end of the lease term, although only nominal residual value is expected at that time. Showman incremental borrowing rate is 10%, and it uses the straight-line method of depreciation on all owned equipment. Showman does not know the rate implicit in the lease. Both Showman and TLC have fiscal year ending March 31, while lease payments are made on April 1 each year.

Required:

Problem (a) Determine the rate implicit in the lease

Problem (b) Determine the present value of the minimum lease payments for the lessee.

Reference no: EM132820669

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