 # Hello, Capital Lease question

Hello, I should know this one by now. I think i am just getting burnt out. Annual end of year payments: 16,000 Term of the Lease 10 years Discount Rate: 10% Depreciation Method: Straight Lignt Salvage Value: 0 In the first year of the lease, the cash flow from financing section of the lessees companys statemento f cash flows will contain a lease releated cash flow that is closest to: a: 6,169 B: 9,831 C: 14,400 D: 16,000

C - payment is 16000, interest in 16000*10%=1600, principal (which goes to CFF) is 16000-1600=14400

A PV of Lease Payments 98,313 Year 1 Interest Expense 98,313*0.1 = 9,831 Year I Principal Payment Total Payment - Interest Expense = Principal Payment 16,000 - 9,831 = 6,169

YES, you are right. I answered this first thing this morning, and my brain wasn’t functioning yet… it is A, as BCH describes above.

A. The lease payment is 16,000. The Interest Expense is the discount rate multiplied by the present value of the future lease payments so .10 x 98,313.0737. The principle reduction in CFF section is the Lease Payment minus the Interest Expense, thus 16,000 - 9,831 = 6168.6.

Hello, A is the correct Answer:) Thank you,