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When Is It Possible for the Present Value of the Minimum

question 66

Essay

When is it possible for the present value of the minimum lease payments to exceed the fair value of the leased property.What must the lessee do to prevent recording an overvalued asset?


Definitions:

Opportunity Cost

The value of the best alternative that is foregone when a particular course of action is chosen.

Incremental Cash Flow

is the additional cash flow generated by a company from a new project or investment, used to analyze the profitability of taking on the new project.

Sunk Cost

A cost that has already been incurred and cannot be recovered, which should not influence future business decisions.

Fixed Cost Financing

A financing strategy where the costs remain constant regardless of the level of production or sales.

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