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21. A 1-year lease agreement requires a payment of $1498+23 dollars per month, with the first payment due next month. Compute the present value of those payments to the lessor if the appropriate annualized discount rate is 7.55%? 22. A 2-year lease agreement requires a payment of $1583+23 dollars per month, with the first payment due today. Compute the present value of those payments to the lessor if the appropriate annualized discount rate is 5.15%? 23. You are being offered a choice of buying or leasing a new car. The purchase price is $47,421+23 dollars, which can be financed at an APR of 5.99% over 4 years (and the car is expected to be worth $20,400 at the end of the 4 years). Alternatively, you can lease the car for four years for $669 per month. Show which offer is better. 

          21. A 1-year lease agreement requires a payment of $1498+23 dollars per month, with the first payment
due next month. Compute the present value of those payments to the lessor if the appropriate
annualized discount rate is 7.55%? 
22. A 2-year lease agreement requires a payment of $1583+23 dollars per month, with the first payment
due today. Compute the present value of those payments to the lessor if the appropriate annualized
discount rate is 5.15%? 
23. You are being offered a choice of buying or leasing a new car. The purchase price is $47,421+23
dollars, which can be financed at an APR of 5.99% over 4 years (and the car is expected to be worth
$20,400 at the end of the 4 years). Alternatively, you can lease the car for four years for $669 per
month. Show which offer is better.
Show more…
21. A 1-year lease agreement requires a payment of 1498+23 dollars per month, with the first payment due next month. Compute the present value of those payments to the lessor if the appropriate annualized discount rate is 7.55%? 22. A 2-year lease agreement requires a payment of1583+23 dollars per month, with the first payment due today. Compute the present value of those payments to the lessor if the appropriate annualized discount rate is 5.15%? 23. You are being offered a choice of buying or leasing a new car. The purchase price is 47,421+23 dollars, which can be financed at an APR of 5.99% over 4 years (and the car is expected to be worth20,400 at the end of the 4 years). Alternatively, you can lease the car for four years for 669 per month. Show which offer is better.

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Horngren’s Cost Accounting
Horngren’s Cost Accounting
Srikant M. Datar, Madhav V. Rajan 16th Edition
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A 1-year lease agreement requires a payment of $1498+23 dollars per month, with the first payment due next month. Compute the present value of those payments to the lessor if the appropriate annualized discount rate is 7.55% ? A 2-year lease agreement requires a payment of $1583+23 dollars per month, with the first payment due today. Compute the present value of those payments to the lessor if the appropriate annualized discount rate is 5.15% ? You are being offered a choice of buying or leasing a new car. The purchase price is $47,421+23 dollars, which can be financed at an APR of 5.99% over 4 years (and the car is expected to be worth $20,400 at the end of the 4 years). Alternatively, you can lease the car for four years for $669 per month. Show which offer is better. Please show work for the Finance Problems! 21.A 1-year lease agreement requires a payment of $1498+23 dollars per month,with the first payment due next month. Compute the present value of those payments to the lessor if the appropriate annualized discount rate is7.55%? 22.A 2-year lease agreement requires a payment of $1583+23 dollars per month,with the first payment due today.Compute the present value of those payments to the lessor if the appropriate annualized discount rate is 5.15%? 23.You are being offered a choice of buying or leasing a new car.The purchase price is $47,421+23 dollars,which can be financed at an APR of 5.99% over 4 years and the car is expected to be worth $20,400 at the end of the 4 years).Alternatively, you can lease the car for four years for $669 per month.Show which offer is better
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Interstate Automobiles Corporation leased 40 vans to VIP Transport under a four-year noncancelable lease on January 1, 2021. Information concerning the lease and the vans follows: a. Equal annual lease payments of $300,000 are due on January 1, 2021, and thereafter on December 31 each year. The first payment was made on January 1, 2021. Interstate's implicit interest rate is 10% and known by VIP. b. VIP has the option to purchase all of the vans at the end of the lease for a total of $290,000. The vans' estimated residual value is $50,000 at the end of 7 years, the estimated life of each van. c. VIP estimates the fair value of the vans to be $1,260,000. Interstate's cost was $1,050,000. d. VIP's incremental borrowing rate is 9%. e. VIP will pay the maintenance fees not included in the annual lease payments of $1,000 per year. The amortization method is straight-line. Required: 1. If the vans' estimated residual value is $300,000 at the end of the lease term, how should the lease be classified by VIP? by Interstate? 2. If the vans' estimated residual value is $400,000 at the end of the lease term, how should the lease be classified by VIP? by Interstate? 3. Regardless of your response to the previous requirements, suppose VIP recorded the lease on January 1, 2021, as a finance lease in the amount of $1,100,000 and that a bargain purchase option exists. What would be the appropriate journal entries related to the finance lease for the second lease payment on December 31, 2021?

Akash M.
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The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company’s present fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considering two alternatives: Purchase alternative: The company can purchase the cars, as in the past, and sell the cars after three years of use. Ten cars will be needed, which can be purchased at a discounted price of $22,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole: Annual cost of servicing, taxes, and licensing $ 3,800 Repairs, first year $ 1,700 Repairs, second year $ 4,200 Repairs, third year $ 6,200 At the end of three years, the fleet could be sold for one-half of the original purchase price. Lease alternative: The company can lease the cars under a three-year lease contract. The lease cost would be $57,000 per year (the first payment due at the end of Year 1). As part of this lease cost, the owner would provide all servicing and repairs, license the cars, and pay all the taxes. Riteway would be required to make a $14,000 security deposit at the beginning of the lease period, which would be refunded when the cars were returned to the owner at the end of the lease contract. Riteway Ad Agency’s required rate of return is 16%. Required: 1. What is the net present value of the cash flows associated with the purchase alternative? 2. What is the net present value of the cash flows associated with the lease alternative? 3. Which alternative should the company accept?

Oluwadamilola A.
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The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company’s present fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considering two alternatives: Purchase alternative: The company can purchase the cars, as in the past, and sell the cars after three years of use. Ten cars will be needed, which can be purchased at a discounted price of $22,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole: Annual cost of servicing, taxes, and licensing $ 3,800 Repairs, first year $ 1,700 Repairs, second year $ 4,200 Repairs, third year $ 6,200 At the end of three years, the fleet could be sold for one-half of the original purchase price. Lease alternative: The company can lease the cars under a three-year lease contract. The lease cost would be $57,000 per year (the first payment due at the end of Year 1). As part of this lease cost, the owner would provide all servicing and repairs, license the cars, and pay all the taxes. Riteway would be required to make a $14,000 security deposit at the beginning of the lease period, which would be refunded when the cars were returned to the owner at the end of the lease contract. Riteway Ad Agency’s required rate of return is 16%. Required: 1. What is the net present value of the cash flows associated with the purchase alternative? 2. What is the net present value of the cash flows associated with the lease alternative? 3. Which alternative should the company accept?

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Transcript

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00:01 So, here requirement 1 is classification by vip.
00:10 If the estimate residual value is $300000 which is less than cost of the vans, vip should classify the lease as a finance lease.
00:39 This is because bargain purchase option is reasonably assured.
00:44 Then classification by interstate.
00:55 Interstate would also classify the lease as a finance lease because the present value is here of minimum lease payments i .e.
01:26 $300000 x 4 years exceeds substantially all of the fair value of the vans.
01:37 Now requirement 2, if the vans estimate residual value is $400000 at the end of lease term, so vip should classify the lease as the finance lease as the bargain purchase option is $290000 is still reasonably assured...
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