CFA Practice Question

CFA Practice Question

If a capital lease requires rental payments of $4,831.27 per year for 8 years, and the implicit interest rate is 12%, what is the amount of the liability that the lessee must establish on its balance sheet at inception of the lease? Assume the first payment is due in one year.
A. $59,423
B. $24,000
C. $4,831.27
Explanation: The correct answer is $24,000 because the amount of the initial liability of a capital lease is the present value of the lease payments, discounted at the implicit interest rate, which in this case is 12%.

User Contributed Comments 3

User Comment
chamad BAII:
PMT 4831.27
N = 8
I = 12
CPT PV=24000
takor 4831.27*8=38,650.16. The PV should be less than this but obviously not C. That leaves you with B. Easier?
dipu617 BA II Plus:
CF0=0
CF1=4831.27
F01=8
I=12
NPV=24000
You need to log in first to add your comment.