###
**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 |