Lease

Question 1

annual straight line depreciation for lease where the lessee may purchase asset at end of term

Answer 1

present value of lease payment + PV of price lessee could pay for asset at end of lease term - nominal savage value at end of asset’s useful life

divided by

useful life of asset (which, in this case, is longer that lease term)

Question 2

annual straight line depreciation for lease where the asset reverts to lessor at end of term

Answer 2

present value of lease payments

divided by

years till end of lease term

Question 3

annual straight line depreciation when the asset reverts to the lessor at the end of the lease term and the lessee guarantees the residual at the end of the lease term.

Answer 3

present value of lease payment + present value of est. savage value at end of lease term - nominal est. savage value at end of lease term

divided by

lease term

Question 4

annual straight line depreciation when the asset reverts to the lessor at the end of the lease term and a third party guarantees the residual at the end of the lease term.

Answer 4

present value of lease payments

divided by

lease term