At the beginning of the year , a leesee company entered into a new capital lease agreement. The lease payments are $100,000 anually and are due at the end of each of the 5 years. The appropriate discount rate is 12%. Depreciation is on a straight line basis with zero salvage value.With respect to the effect of the lease on the company’s financial statements in the first year of the lease ,which of the following is most accurate. The reduction in the company’s: A. pretax income is $72,096 B. cash flow from financing $56,742 C. cash flow from operations $72,096 D. cash flow from operations $115,353 I think its C?
B using calc: PV = 360,500 straight-line deprec = 360,500/5 = 72,100 total expense = 360,500*0.12+ 72,100 = 115,360 - reduction in income; --> not A CFO = 43,260 --> not C or D --> CFF=100,000-43,260=56,740 --> B