The Following Are Some of the Characteristics of an Asset

question 87

Essay

The following are some of the characteristics of an asset available for lease:
$$\begin{array} { | l | l | } \hline \text { Fair value of leased asset } & 88,000 \\\hline \text { Useful life } & 10 \text { years } \\\hline \text { Lease term } & 7 \text { years } \\\hline \text { Payment frequency } & \text { Annual } \\\hline \text { Payment timing } & \text { Beginning of year } \\\hline \text { Guaranteed residual value } & 10,000 \\\hline \text { Interest rate implicit in lease (not known to lessee) } & 10 \% \\\hline \text { Lessee's incremental borrowing rate } & 8 \% \\\hline\end{array}$$ Requirements:
a.Determine the amount of lease payment that the lessor would require to lease the asset.
b.Compute the present value of minimum lease payments for the lessee.

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Definitions:

Stock Dividend

Increases the number of shares outstanding, but at a slower rate than splits. Current shareholders receive additional shares on some proportional basis. Thus, a holder of 100 shares would receive 5 additional shares at no cost if a 5% stock dividend were declared.

Shareholder's Wealth

The total value of an individual's or entity's equity in a firm, essentially reflecting the market value of their shares.

Institutional Investors

Entities such as pension funds, insurance companies, and mutual funds that invest large amounts of money in securities, real estate, and other investment assets.

Syndicated Offerings

A financing arrangement where multiple lenders team up to provide a borrower with a large loan, often used in big and complex projects.