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Cainas Cookies decides to lease a new kitchen space
Cainas Cookies decides to lease a new kitchen space. She signs a 30 month lease for $400 per month. Assuming her cost of capital is 12%, what amount should she record on her books as a lease liability today? Please set up the problem (show your work here), look up the factor and then solve, showing your final answer below.
Expert Solution
Lease is generally a Annuity due. Payment is made at Beginning of period. Present Value Of lease shall be Calculated using Present Value Of Annuity due Factor values.
Lease amount per month (P)= 400
Cost of Capital per Month (i)= 12%/12= 1%
Number of month (n)=30
PV of Annuity due $1 Formula = 1+(1*(1-(1/(1+i)^(n-1)))/i)
=1+(1*(1-(1/(1+1%)^(30-1)))/1%)
=26.0657853
Present Value Of lease liability today = Annuity or lease per month*PV factor
=400*26.0657853
=10426.31412
So Present Value of lease liability today will be 10426.31412
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