Compute the amount of a lease payment, where a five (5) year lease is signed on April 24, 2014 and is to be repaid in semi-annual installment payments starting on April 24, 2014, and continuing every March 24 and September 24. The asset has a total economic life of seven (7) years.
The asset has a $486,000 historical cost (and $530,000 market value) to the lessor on April 24, 2014. The lessor expects the asset to have a total residual value of $84,000 on April 24, 2019 (end of lease), with a guaranteed residual value of $35,000. The lessor also expects the asset to have a total residual value of $5,000 (unguaranteed) on April 24, 2021
(end of asset life). The lessee's weighted average cost of capital is 8.2%, and the lessee pays $1,700 to a lawyer to review the language of the lease. The lessor desires a 6.8% rate of return, and pays a lawyer $4,300 to create the lease. The lessor's rate is known by the lessee.