Principles of Financial Accounting.
24th Edition
ISBN: 9781260158601
Author: Wild
Publisher: MCG
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Chapter 14, Problem 22E
To determine
Ascertain the best alternative by using the Present value.
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General Motors advertised three alternatives for a 25-month lease on a new Tahoe: (1) zero dollars down and a lease payment of $1,750 per month for 25 months, (2) $5,000 down and $1,500 per month for 25 months, or (3) $38,500 down and no payments for 25 months. Use the present value Table B.3 in Appendix B to determine which is the best alternative for the customer (assume you have enough cash to accept any alternative and the annual interest rate is 12% compounded monthly).
Automobile leases are built around three factors: negotiated sales price, residual value, and interest rate. The residual value is what the dealership expects the car’s value will be when the vehicle is returned at the end of the lease period. The monthly cost of the lease is the capital recovery amount determined by using these three factors. Solve, (a) Determine the monthly lease payment for a car that has an agreed-upon sales price of $34,995, an APR of 9% compounded monthly, and an estimated residual value of $20,000 at the end of a 36-month lease.∗ An up-front paymentof $3,000 is due when the lease agreement (contract) is signed. (b) If the estimated residual value is raised to $25,000 by the dealership to get yourbusiness, how much will the monthly payment be?
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period: The value of the car is $15,000 at the beginning of the lease period, and its projected residual value at the end of three years is $4,000. The lease requires a $500 down payment.
Monthly payment $315
Acquisition fee $300
Disposition charge $150
Other things being equal, one would want to finance this car rather than take this lease if the finance cost were equal to or less than?
Chapter 14 Solutions
Principles of Financial Accounting.
Ch. 14 - A bond traded at 97 means that a. The bond pays...Ch. 14 - Prob. 2MCQCh. 14 - Prob. 3MCQCh. 14 - Prob. 4MCQCh. 14 - Prob. 5MCQCh. 14 - Prob. 1DQCh. 14 - Prob. 2DQCh. 14 - Prob. 3DQCh. 14 - Prob. 4DQCh. 14 - Prob. 5DQ
Ch. 14 - Prob. 6DQCh. 14 - Prob. 7DQCh. 14 - Prob. 8DQCh. 14 - Prob. 9DQCh. 14 - Prob. 10DQCh. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 15DQCh. 14 - Prob. 16DQCh. 14 - Prob. 17DQCh. 14 - Prob. 18DQCh. 14 - Prob. 19DQCh. 14 - Bond financing Identify the following as either an...Ch. 14 - Prob. 2QSCh. 14 - Prob. 3QSCh. 14 - Prob. 4QSCh. 14 - Prob. 5QSCh. 14 - Prob. 6QSCh. 14 - Prob. 7QSCh. 14 - Prob. 8QSCh. 14 - Prob. 9QSCh. 14 - Prob. 10QSCh. 14 - Prob. 11QSCh. 14 - Prob. 12QSCh. 14 - Bond features and terminology Enter the letter of...Ch. 14 - Prob. 14QSCh. 14 - Prob. 15QSCh. 14 - Prob. 16QSCh. 14 - Prob. 17QSCh. 14 - Prob. 18QSCh. 14 - Prob. 19QSCh. 14 - Prob. 20QSCh. 14 - Prob. 1ECh. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - Prob. 4ECh. 14 - Prob. 5ECh. 14 - Prob. 6ECh. 14 - Duval Co. issues four-year bonds with a 100,000...Ch. 14 - Prob. 8ECh. 14 - Prob. 9ECh. 14 - Prob. 10ECh. 14 - Prob. 11ECh. 14 - Prob. 12ECh. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 - Prob. 15ECh. 14 - Prob. 16ECh. 14 - Prob. 17ECh. 14 - Prob. 18ECh. 14 - Prob. 19ECh. 14 - In each of the following separate cases, indicate...Ch. 14 - Prob. 21ECh. 14 - Prob. 22ECh. 14 - Prob. 1APCh. 14 - Prob. 2APCh. 14 - Prob. 3APCh. 14 - Prob. 4APCh. 14 - Prob. 5APCh. 14 - Prob. 6APCh. 14 - Prob. 7APCh. 14 - Prob. 8APCh. 14 - Prob. 9APCh. 14 - Prob. 10APCh. 14 - Prob. 11APCh. 14 - Refer to the lease details in Problem 14-11A....Ch. 14 - Prob. 1BPCh. 14 - Prob. 2BPCh. 14 - Prob. 3BPCh. 14 - Prob. 4BPCh. 14 - Prob. 5BPCh. 14 - Prob. 6BPCh. 14 - Prob. 7BPCh. 14 - Prob. 8BPCh. 14 - Prob. 9BPCh. 14 - Prob. 10BPCh. 14 - Prob. 11BPCh. 14 - Prob. 12BPCh. 14 - Prob. 14SPCh. 14 - Prob. 1AACh. 14 - Prob. 2AACh. 14 - Prob. 3AACh. 14 - Prob. 1BTNCh. 14 - Prob. 2BTNCh. 14 - Prob. 3BTNCh. 14 - Prob. 5BTN
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- Use the information in RE20-6. However, assume that there is no bargain purchase option and that Montevallo guarantees the 20,000 estimated residual value at the end of the 10-year lease. Montevallo estimates that it is probable that it will have to pay 15,000 cash due to the residual value guarantee. Calculate the present value of the lease payments. Round your answer to the nearest dollar.arrow_forwardLease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?arrow_forward9. Automobile leases are built around three factors: negotiated sales price, residual value, and interest rate. The residual value is what the dealership expects the car's value will be when the vehicle is returned at the end of the lease period. The monthly cost of the lease is the capital recovery amount determined by using these three factors. Determine the monthly lease payment for a car that has an agreed-upon sales price of $34,995, an APR of 9% compounded monthly, and an estimated residual value of $20,000 at the end of a 36-month lease. An up-front payment of $3,000 is due when the lease agreement (contract) is signed.arrow_forward
- Financial Statement Reporting for a Finance Lease Reynolds Construction (RC) needs a piece of equipment that costs $165,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 10% with payments due at the end of the year. Alternatively, RC can lease the equipment for $60,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will RC report as an interest expense…arrow_forwardOne of the departments at Yolo Industries has entered into a 9 year lease for a piece of equipment. The annual payment under the lease will be $3,600, with payments being made at the beginning of each year. If the discount rate is 10%, the present value of the lease payments is closest to (Ignore income taxes.): Click here to view Exhibit 14B-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using the tables provided. (Round your intermediate calculations to 3 decimal places.) Multiple Choice $22,806 $10,07Y $22,105 $32,400arrow_forwardHi, Please help to determine present value of lease payments (lessee) considering the following: Project 2.2 Topic: Leases Part 2 Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%. Project 2.2 Part 2 Ledger Date Account Name Debit Credit 1/1/20x1 ROU assets [A] Lease obligation [B]arrow_forward
- Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is $25,000, and its projected residual value at the end of five years is $10,000. Monthly payment $450 Capital cost reduction $1,700 Disposition charge $400 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Group of answer choices $14, 100. $15,500. $12,900. $400.arrow_forwardHonda is selling a 2014 Accord Coupe Ex M for $30 056.90 including freight, PDI and all applicable fees. The lease payment of $382 is due at the beginning of each month. If the interest rate compounded annually is 3.99% and the residual value is $13 200, determine the size of the final lease payment. Question 1 options: A) $285.95 B) $240.51 C) $214.13 D) $150.28 E) $5.92arrow_forwardCompare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than?arrow_forward
- Compare the cost of the following lesing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Select one: a. $2,200 b. $2,000 c. $1,550 d. $1,450arrow_forwardDifferential Analysis for a Lease-or-Sell Decision Matrix Construction Company is considering selling excess machinery with a book value of $75,000 (original cost of $200,000 less accumulated depreciation of $125,000) for $60,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $75,000 for five years, after which it is expected to have no residual value. During the period of the lease, Matrix Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $21,500. a. Prepare a differential analysis, dated May 25 to determine whether Matrix should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery(Alternative 1) Sell Machinery(Alternative 2) Differential Effecton Income(Alternative…arrow_forwardOrganic Markets reports operating lease information in its 2016 annual report (in millions). You determine that a discount rate of 6.0% is appropriate for Organic Markets and calculate the following. What economic liability is potentially left off Organic Markets' balance sheet? Note: Round the remaining lease term to the nearest whole year, using the final lease payment provided as an estimate of annual future payments. Year 2017 2018 2019 2020 2021 Thereafter Minimum operating lease payments $650 783 836 852 854 9,728 $13,703 Select one: O a. $8,358 million O b. $13,703 million. O c. $10,183 million O d. $10,060 million.arrow_forward
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