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**CFA Practice Question**

If a capital lease requires rental payments of $18,095 per year for 3 years and the implicit interest rate is 10%, what is the value of the asset that the lessee must establish on its balance sheet at the inception of the lease (round to the nearest $1)?

A. $59,894

B. $54,285

C. $45,000

**Explanation:**The correct answer is $45,000 because the initial asset amount of a capital lease is the present value of the lease payments discounted at the implicit interest rate, which in this case is 10%.

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**User Contributed Comments**
9

User |
Comment |
---|---|

roninacolyte |
hp 12c: 18,095=PMT, 3=n, 10=i, PV = $44,924. |

HoyaPaul |
how do you do this on baII plus? I get something like 750,000 inputting the same things... |

shuyi |
Using Cashflow: CF0=0; C01=18,095, F01=3, I=10, Compute NPV= 44,999.59 |

dealsoutlook |
why make it so complicated? it is a simple PV calcuation n=3 i/y = 10% PMT=18,095 and then CPT PV. |

sagania |
Change sign on PMT. Its outflow... |

kudie |
don't need a calculator...it's 3 X payments of 18095 which is 54285, and you know that present value has to be less than that but not by that much, so answer has to be c. |

takor |
Kudie; thats very intuitive. Thanks |

tommyguard3 |
Good exam strategie kudie. Hoya BAII -18095 pmt 0 FV 10 I/Y 3 N CPT PV |

ShirleyZQ |
Set FV=0 |