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%.
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 |