Complete Question
The lease payments from footnote disclosures of an operating lease Year Lease payments ($) 1. 2. 3. Year 4 and after 1,375 1,210 825 4,125 Assume a discount rate of 8%.
Required:
a. Calculate the Pv of all the lease payments.
b. Assume a 10% discount rate and a tax rate of 25%, so that the Pv of all the lease payments is $5,220.
Complete the I/S figures Income Statement Effects
As Reported Adjustment Adjusted
NO PAT $1,500 - -
INT(1-tax rate) 475 - -
NI $1,025 - -
Answer:
Explanation:
from the question
from the question
present value of all lease payment
year lease payment
1 $1373
2 $1210
3 $ 825
4 and after $4125
To get or derive the of the lease payment after year 4 i.e future lease payment
= [tex]\frac{ annual\ lease\ payment\ for\ year\ 4\ and\ after}{ discount\ rate}[/tex]
= [tex]\frac{4125 }{ 0.08} = 51562.5[/tex]
[tex]PV = (1+i)^{-n}[/tex]
present value of all lease payment
year lease payment present value at 8%
1 $1375 $1273
2 $1210 $1037
3 $835 $654
4 $4125 $3032
$51562.5 $37899
Total $43895
calculation for PV
year
1 0.9259 × 1375
2 0.8573 × 1210
3 0.7938 × 835
4 0.7350 × 4125
after 0.7350 × 51562.5
As reported adjustment Adjusted
NO PAT $1500 $0 $ 1500
INT ( 1-Tax rate) $ 475 $392 $ 867
NI $1025 $0 $ 634
Calculation of adjustment and adjusted
adjustment adjusted
NO PAT $1500 + $0
INT (1-TAX RATE] 5220×0.10×(1 -0.25) $475 + $392
NI $1500 - $867
