The Following Are Some of the Characteristics of an Asset

question 83

Essay

The following are some of the characteristics of an asset available for lease:
$$\begin{array} { | l | l | } \hline \text { Fair value of leased asset } & 150,000 \\\hline \text { Lease term } & 8 \text { years } \\\hline \text { Payment frequency } & \text { Annual } \\\hline \text { Payment timing } & \text { Beginning of year } \\\hline \text { Guaranteed residual value } & 25,000 \\\hline \text { Interest rate implicit in lease (not known to lessee) } & 11 \% \\\hline \text { Lessee's incremental borrowing rate } & 9 \% \\\hline\end{array}$$ 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.

---

Definitions:

Per Capita GDP

The total Gross Domestic Product of a country divided by its population, indicating the average economic output per person.

Per Capita Income

The average income earned per person in a given area or country, calculated by dividing the total income by the population size.

Economic Growth

An increase in the capacity of an economy to produce goods and services, compared from one period of time to another.

Life Expectancy

The average number of years a person is expected to live based on demographic factors such as current age and gender, typically derived from statistical analysis.