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Chapter 5: Q20BP-a (page 531)

The Deluxe Corporation has just signed a 168-month lease on an asset with a 19-year life. The minimum lease payments are \(1,300 per month (\)15,600 per year) and are to be discounted back to the present at a 9 percent annual discount rate. The estimated fair value of the property is $165,000.

a. Calculate the lease period as a percentage to the estimated life of the leased property.

Short Answer

Expert verified

The lease period is equal to 73.69% of the asset’s life.

Step by step solution

01

Information provided in question

Time of lease = 168 month

Life of asset = 19 years

Minimum monthly payments = $1,300

Minimum annual payments = $15,600

Discount rate = 9%

Estimated fair value of asset = $165,000

02

Calculation of lease period as a percentage of assets life

The lease period is 73.69% of the asset’s life.

Percentage of lease period=Lease periodLife of asset×100=168months19years×12months×100=168228×100=73.69%

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