Help with calculation

[doe10101]

can someone please tell me how the interest expense of 2600 was calculated on this page?

Assumptions

A four-year non-cancelable lease term: 48 months
Minimum monthly lease payment: $1,000
Assuming there are no defined lease options, contingent rental payments or residual value guarantee
Incremental borrowing rate: 7%
Calculated Amounts

Present Value (PV) of lease payments = $42,000

Total lease payments over the 48 month term = $48,000

 

[ArcSine]

There seems to be either some missing info, or some heavy-duty rounding.

At 7%, with monthly payments and compounding, 48 payments of 1,000 each have a PV of 41,760.20.

If you run an amortization schedule for this arrangement, you'll see that the total interest expense over the first 12 months is 2,626.26.

Is the question asking for the interest expense for the first year?

 

[doe10101]

Yes for the first year.

I assumed it had something to do with the rounding.

Drove me a little wild since, I was looking for the exact number. The percent could be changed to 6.2%

Thanks for taking the time to respond.

 

[ArcSine]

Yeah, looks like they were a bit loose with their precision requirements. At a discount rate of 6.9204% (pretty close to 7), the PV of the payments is 41,824.69 and the interest component of the first 12 payments is precisely 2,600.