Lease conversion from operating to corporation A company has borrowing cost of about 4% in 2014 and
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Question:
Lease conversion from operating to corporation
A company has borrowing cost of about 4% in 2014 and lease balance $4,300 (No work needs to be done on the chart below)
Fiscal Year | Capital Leases | Operating Lease |
2014 | $25 | $400 |
2015 | 10 | 420 |
2016 | -- | 380 |
2017 | -- | 350 |
2018 | -- | 320 |
Thereafter | -- | 3,500 |
Instructions (For the chart below, please show work):
[1] calculate the additional years of conversion from operating to capital.
[2] calculate the payment, discount factor, PV, interest, lease obligation and lease balance. (Payment : from the operating lease table, you will have 320 up to 2028, make the adjustment on 2029 in order to have zero balance after converting to capital lease)
[3] please find the discount factor on the last 4 years.
[4] provide the brief interpretation on your calculation
Year | Payment | Discount Factor | Present Value (4%) | Interest | Lease Obligation | Lease Balance |
2013 | $4,300 | |||||
2014 | 400 | 0.9615 | ||||
2015 | 420 | 0.9246 | ||||
2016 | 380 | 0.8890 | ||||
2017 | 350 | 0.8548 | ||||
2018 | 320 | 0.8219 | ||||
2019 | 320 | 0.7903 | ||||
2020 | 320 | 0.7599 | ||||
2021 | 320 | 0.7307 | ||||
2022 | 320 | 0.7026 | ||||
2023 | 320 | 0.6756 | ||||
2024 | 320 | 0.6496 | ||||
2025 | 320 | 0.9246 | ||||
2026 | 320 | |||||
2027 | 320 | |||||
2028 | 320 | |||||
2029 |
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