What Is the Present Value of an Operating Lease That

question 77

Multiple Choice

What is the present value of an operating lease that involves payments of $8,000 per year (the end of the year) for 5 years with no possibility of purchase at the end of the lease term.Assume that the firm is in the 35% marginal tax rate and the pre-tax cost of debt for the firm is 7%?

• A) $32,801.58
• B) $22,796.11
• C) $21,321.03
• D) $35,070.93

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Definitions:

Continuing Operations

Refers to the parts of a business expected to continue operating and generating revenue over the long term, excluding any discontinued operations.

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's earnings.

Investing Activities

Cash flow activities that include (a) purchasing and disposing of investments and property, plant, and equipment using cash and (b) lending money and collecting the loans.

Cash Inflow

Money or equivalent value received by a business during a specific period, including revenues from sales, financing, and investment activities.