Assignment
Part 1
Aardvark Printers Corporation has just signed a 120-month lease on an asset with a 12 year life. The minimum lease payments are $5,600 per month ($67,200 per year) and are to be discounted back to the present at a 7.0 percent annual discount rate. The estimated fair value of the property is $500,000. The Lessee does not have a bargain purchase option or any stated transfer of ownership at the end of the lease period.
a. Calculate the lease period as a percentage to the estimated life of the leased property.
b. Calculate the present value of lease payments as a percentage to the fair value of the property.
c. Should the lease be recorded as a capital lease or an operating lease? Consider all 4 criteria from the text on page 523 to answer this question.
Part 2
Alyssum Timber is holding a stockholders' meeting next month. Mr. Deltic is the president of the company and has the support of the existing board of directors. All 12 members of the board are up for reelection. Mrs. Clark is a dissident stockholder. She controls proxies for 340,001 shares.
Mr. Deltic and his friends on the board control 440,001 shares. Other stockholders, whose loyalties are unknown, will be voting the remaining 240,998 shares. The company uses cumulative voting.
a. How many directors can Mrs. Clark be sure of electing?
b. How many directors can Mr. Deltic and his friends be sure of electing?
c. How many directors could Mrs. Clark elect if she obtains all the proxies for the uncommitted votes? (Uneven values must be rounded down to the nearest whole number regardless of the amount.) Will she control the board?