Reference no: EM132543780

Metlock Company leases an automobile with a fair value of $16,767 from John Simon Motors, Inc., on the following terms:

1. Non-cancelable term of 50 months.

2. Rental of $350 per month (at the beginning of each month).

3. Metlock guarantees a residual value of $1,170. Delaney expects the probable residual value to be $1,170 at the end of the lease term.

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

Question A.) What is the present value of the lease payments to determine the lease liability? (Round answer to 0 decimal places, e.g. 5,275.)

Question B.) Suppose that instead of $1,170, Metlock expects the residual value to be only $500 (the guaranteed amount is still $1,170). How does the calculation of the present value of the lease payments change from part (A)?