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Hi
I wana ask regarding finance lease calculation PleaseYear Cash Flow D.F10% P.V
2003-6 150000 3.170 475500According to my limited knowledge , I was thinking we start (Year 3 + Year 0) This means
Year 3 Annuity table 2.487 +1=3.487 * 150000=523050.Can you please help me to rectify the error. Thanks
2nd question regarding operating lease , They added up discount factor like (Year 3 + Year 0) Year 3 Annuity table 2.487 + 1=3.487
but they didn’t subtract 3.791-.909=2.882 but they put 3.170 * 42000=133140.
Hope you understand what i wana say because i couldn’t write whole question.I am only confused in working.
I am looking forward to hearing from you. ThanksIn future please also give the name of the question (because although I think you are referring to “Leaminger” it is question 51 in the current edition of the BPP Revision Kit 🙂 )
Time 0 is 2002 (because the first flow mentioned – the purchase price – is 2002).
Therefore 2003 is time 1, and the flows are therefore time 1 to time 4. It is a 4 year annuity starting in 1 years time, and therefore you get the present value by multiplying by the 4 year annuity factor of 3.170. (2003 to 2006 is 4 years in total)
With the operating lease, since the payments are at the start of years, the first payment is immediately, followed by 3 payments at times 1 to 3.
The discount factor for the immediate payment is 1, the discount factor for the payments from time 1 to time 3 is the 3 year annuity facto which is 2.487. So the total discount factor is 3.487.I really do suggest that you watch the free lectures on annuities, and especially the free lecture on lease and buy.
Sorry not to mentioned the name of the question.
Thank you so much for answering .
Definitely I will watch free lecture soon.
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