Pat Delaney Company leases an automobile with a fair value of $15,056 from John Simon Motors, Inc., on the following terms.
1. Noncancelable term of 55 months.
2. Rental of $320 per month (at end of each month). (The present value at 1% per month is $13,487.)
3. Estimated residual value after 55 months is $1,170. (The present value at 1% per month is $677.) Delaney Company guarantees the residual value of $1,170.
4. Estimated economic life of the automobile is 56 months.
5. Delaney Company’s incremental borrowing rate is 12% a year (1% a month). Simon’s implicit rate is unknown.
What is the present value of the minimum lease payments?
The present value of the minimum lease payments $