What is Gross Investment?

• A. The sum of all the minimum lease payments plus the unguaranteed residual value
• B. The present value of lease payments
• C. The net investment in the lease
• D. The total cost of the asset

Answer: (A)

Gross investment in a lease is the total amount the lessor expects to recover over the lease term, calculated as the sum of all minimum lease payments plus any unguaranteed residual value at the end of the lease. This represents the total consideration the lessor anticipates, before applying the time value of money. The present value of lease payments, by contrast, is the net investment after discounting those cash flows at the lease rate. The net investment is not the same as the gross figure because it reflects the discounted value of what will actually be received. The total cost of the asset is a separate measure and not the basis for the gross lease investment. So the combination of minimum lease payments and unguaranteed residual value neatly captures the gross amount the lessor expects to collect.