Exhibit

Building: Capital lease solution

Data
Annual lease payment $ 98,000
Lease term 15 years
Fair value of building — January 1 1,200,000 A

Lessor's implicit interest rate Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15
Acquire asset at fair market value (1,200,000)
Lease receipts 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000
Residual value (market) 500,000
Cash flow to lessor (1,102,000) 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 500,000

A 6.2065% Implicit rate (IRR) is the one that makes NPV equal to fair value (IRR(C13:K13))
6.2065% OR direct calculation RATE(15,-98000,1200000,-500000,1)

B 5.00% Incremental borrowing rate (given)

C 5.00% Lower of implicit rate and incremental borrowing rate

Lessee's minimum lease payments Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15
Lease payments 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000
No BPO, assume no guaranteed residual
Total payments 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 98,000 -

NPV using rate C above 1,068,066.81 NPV(C20,D25:K25)+C25

OR direct calculation 1,068,067 =PV(5%,15,-98000,,1)

Fair value 1,200,000 (given)

89% Present value of minimum lease payments is approximately 90% of the fair value, so this criterion can be considered to be met and that the lease is capital.

Obligation interest Opening Payment - Jan. 1 Closing Interest at 5%

1,068,067 - 98,000 970,067 48,503