Skip to content
Sign inRegister

Ask the Tutor ACCA FM

BPP Exam Kit Q-50

MMujtaba11y ago
Hi I wana ask regarding finance lease calculation Please Year Cash Flow D.F10% P.V 2003-6 150000 3.170 475500 According 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. Thanks
John MoffatJohn MoffatTutor11y ago#1
In 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.
MMujtaba11y ago#2
Sorry not to mentioned the name of the question. Thank you so much for answering . Definitely I will watch free lecture soon.
John MoffatJohn MoffatTutor11y ago#3
You are welcome :-)
Sign into reply to this topic.