A firm decides to enter into a lease agreement. The

A firm decides to enter into a lease agreement. The lease term is four years, while the economic life of the asset is five years. The annual lease payment is $10,000 at the beginning of each year, and the appropriate discount rate is 8 percent. There is no salvage value at the end of the lease. The lessee uses the straight-line depreciation method. Estimate the NPV of the lease payments. Estimate the change in NI, CFO, and CFF at the end of the first year.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...