Hello All,
In Schweser’s FRA page 55, could someone explain why the cash flow from financing in figure 3 is 7921 for Year 1? I can see that 7921=10000-2079. But why should the CFF and CFO in a finance lease add up so nicely to equaly CFO of operating lease?
Thank you,
P
Howdy!
Because . . . it’s cash flow.
You write a yearly check for $10,000.
That’s the cash flow.
The bank doesn’t care whether you classify it as CFF or CFI or CFO: it’s $10,000.
The lessor doesn’t care whether you classify it as CFF or CFI or CFO: it’s $10,000.
It doesn’t matter how you classify it – CFF or CFO (as a Level II candidate you would never classify it as CFI, and I know that) – it’s $10,000.
You’re welcome.