Management of Caldor Kites, Inc., is considering leasing a new asset. Information on the asset and the terms of the lease are as follows: The asset has a fair market value of $1.3 million, an estimated useful life of 7 years, and no salvage value. Company incremental borrowing rate is 13.0%. Lease term of 5 years with lease payments of $24,700 due at the beginning of each month. Implicit lease rate is 10.0%. The lease does not contain a bargain purchase option and there is no title transfer at the end of the lease. Would this be a capital or operating lease?
Capital lease with calculatr in BGN mode, N=5*12=60, I/Y=10/12, PMT=24,700, FV=0, CMP PV=-1,172,202.24 The PV of the asset is 90.17% (more than 90%) of its fair market value (90.17%=1,172,202.24/1,300,000).
Capital lease. PV of payments > 90% of fair market value.
aghh…BGN mode!! forgot about that… Thanks guys
shit. BGN mode. missed that one
map1 is on fire