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Could you please explain meaning of annuity factor in examlple of leasing back with actual sale in your lectures.Technically everything is clear, but i would like to understand the logic.Is it right to assume that present value of 1 mln which one will receive during 1-10 years is not 10 mln because of time value of money? So, how this 5% imlplicit rate can be applied ? I could not come to 10 mln by my way of calculations.
Hi,
The 10 million is the current fair value and is not linked to the payments, nor the discount rate of 5%, so you do not need to try and calculate it in any way at all.
You use the 5% to work out the present value of the lease payments, so that we can recognise it at this amount following the sale and the leasing it back.
Thanks
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