# Book 7 Morning Session Practice Exam 3

I decided to start from this one… ( and made a big mistake!!!) on page 244 what is - the present value of YD`s future operating leases is \$57 million with interest expense of \$4 represent? Any idea? Thank you

You probably need to take that PV(LO) and add it to A and L to make it economically equivalent to capitalizing the lease. I can’t say anything much w/o looking at the question, but the idea should be to balance the BS-Equation

I thought about capitalising however there is an amount of interest expense given of \$4 million and do not know what do with it. I am not sure whether it represents the lease operating expense…

That \$4m should be the rent expense, applicable to the operating lease. So we need to back that out completely and recalculate 2 more component 1. interest expense -> Begn BV of lease*IE 2. deprecition on the Assets. The combination of 1+2 would be a huge amount initially that we need to charge on IS, but as and when the accelerated depreciation does the trick, we will have lower and lower expense hitting the IS. Also, The CF will now get split into 2 components -> CFF and CFO Champs correct me if I am bluffing here?