Question

Give the components of determining present value of minimum lease payments (Ref: criteria for capital lease)

Answer 1

The components of determining the present value of minimum lease payments for a capital lease include the minimum lease payments, discount rate, and time periods. The present value of each lease payment for each time period is calculated using the discount rate, and then the present values are added up to get the final present value.

Step-by-step explanation:

When determining the present value of minimum lease payments for a capital lease, there are several components to consider:

1. Minimum lease payments: These are the fixed amounts that the lessee is obligated to pay over the lease term.
2. Discount rate: This is the rate used to discount the future lease payments to their present value. In this case, the discount rate is 15%.
3. Time periods: The lease payments are typically spread out over several time periods. You need to calculate the present value of each payment for each time period using the discount rate.

Once you have calculated the present value of each lease payment for each time period, you can add them up to get the final present value of the minimum lease payments.