CFA Practice Question

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
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