Page 45 - FINAL CFA I SLIDES JUNE 2019 DAY 9
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Session Unit 9:
Off-balance-Sheet Financing, p.328 33. Financial Statement Analysis: Applications
Example: Present value of operating lease obligation, p. 328: Abration Corp. reported the following for 20X1:
Present value of capital leases: $6.184 million
Estimate the present value of
Abration’s operating leases
tanties
Method 1: Assume operating leases have the same ratio of PV to payments as the firm’s capital leases.
• $12 million in capital lease and $5.5 million in operating lease payments are due in the future.
• Ratio of the PV of capital leases to its total future lease payments is $6.184 million / $12 million = 0.5153.
• PV of their operating leases as 0.5153 × $5.5 million = $2.834 million.
Method 2: Estimate discount rate for capital leases and apply it to operating leases.
