• Moving accounting
    The calculation of a weighted average cost of capital, demonstrated in the previous section, is necessary to obtain the relevant discount rate to use in capital budgeting analysis. Once a decision has been made, using capital budgeting analysis, to invest in a particular asset, it is often wise...
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  • Termoan
    participants have been identified: the lessor and lessee. In leveraged leasing, a third participant is added: the lender, who helps finance the acquisition of the asset to be leased. From the viewpoint of the lessee, there is no difference in a leveraged lease, direct lease, or sale and leaseback...
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  • Environmental Osc Case
    the firm's cost of capital. Therefore, the weighted average cost of capital is the appropriate opportunity rate to use in evaluating lease-versus-purchase decisions. (2) Tom, on the other hand, believes that the cash flows generated in a lease-versus-purchase situation are more certain than...
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  • Finance
    would not provide any services relating to the asset. As such, the lease is net lease. * The risk the lessor takes is not asset-based risk but lessee-based risk. The value of the asset is important only from the viewpoint of security of the lessor’s investment. * In financial leases, the...
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  • Case Study
    relevant data is conducted by Environmental’s method of evaluating lease decisions has been to calculate the “present value cost” of the lease payments versus the present value of the total charges if the equipment is purchased. However, in a recent evaluation, Susan and Tom got into a heated...
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  • Corporate Finance
    financing the asset. Finally, whilst a leveraged lease is complex for the lessor, from the lessee’s viewpoint it is essentially the same as any other finance lease. The lessee enters into a normal lease contract, agreeing to lease the asset for a specified period and to make specified lease payments...
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  • Accounting
    Refunding. 6. Lease Financing: Definition of Lease, Types of Leases, Leasing Arrangements, Advantages and Disadvantages of Lease, Lease versus Purchase Decision, Leasing in Bangladesh-Problems and Prospects. 7. Working Capital Management: Importance, Determinants of Working capital, Policies for...
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  • Notes
    . Inflation-adjust both revenues & expenses arising from the project. Discount nominal flows with a nominal rate or discount real flows with a real rate 7. Separate the investment and financing decision. Financing costs are reflected in the opportunity cost of capital (to be addressed...
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  • Finance
    tax rate, the maximum lease payment that the lessee would be willing to pay would be equal to the minimum payment that the lessor would be willing to accept i.e$22,110 9. How much of an impact does the forecast of the salvage value of the new machine have on the lease versus buy decision? The...
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  • Leasing
    the discount rate should be approximately the same as the interest rate on such debt. This also explains why the WACC should not be used. * There is a simple method for evaluating leases: discount all cash flows at the aftertax interest rate on secured debt issued by the lessee. Suppose that...
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  • Lease vs. Buy Analysis
     buy the asset at a below market price, the IRS may view the lease as a loan and prohibit the lessee from  deducting the lease payments in the year(s) in which they are made.  Otherwise, if Generally Accepted Accounting Principles (GAAP)  were used in accounting for the asset and the lease meets the...
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  • Essay
    What is the relevant discount rate for evaluating whether or not to lease an asset? Why? 26.5b Explain how to go about a lease versus buy analysis. 26.6 A LEASING PARADOX We previously looked at the lease versus buy decision from the perspective of the potential lessee, Tasha. We now turn...
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  • Investment Banking and Financial Services
    . (Tax Shield on Management Fee) – P.V. (Tax Shield on Depreciation) – P.V. (Net Salvage Value). b. Lease the equipment if NAL is positive. Buy the equipment if NAL is negative. The discount rate employed is the marginal cost of capital based on the mix of debt and equity in the target capital...
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  • Fundamentals of Corporate Finance
    . NPV Analysis Now that we know that the relevant rate for evaluating a lease versus buy decision is the firm’s aftertax borrowing cost, an NPV analysis is straightforward. We simply discount the cash flows back to the present at Tasha’s aftertax borrowing rate of 5 percent as follows: NPV $10,000...
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  • Lecture Note for the Course
    flows (in millions) for Project F (Fast) and S (Slow) Project F S CF0 – €1,000 – €1,000 CF1 €500 €100 CF2 €400 €300 CF3 €300 €400 CF4 €100 €600 Given the discount rate of 10 percent Important Assumption in the Net Present Value Calculation • Interim cash flows are reinvested at the discount...
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  • Financial Statement Analysis
    the closing balance sheets, and, thus, requires examination of the lease footnote from both the prior and current years. All approaches have strengths and weaknesses and all rely on some estimation, not only relating to the amount of rent expense eliminated, but also with respect to the discount rate...
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  • Operating Leases
    lease commitments may be more long-term than those for capital leases. • S & P uses a similar procedure when estimating PVOL ^ for bond-rating purposes. ^ For example, at a ten percent interest rate the difference in the present value of a dollar 12 years hence versus 13 years hence is less than three...
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  • Leasing of Blil
    at the inception of the lease would have incurred to borrow the funds necessary to buy the lease asset, on a secured loan with repayment terms similar to schedule call for lease. Exception: 1. If the lessee knows the multiple interest rate computed by the lessor. 2. It is less than the...
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  • Financial Accounting Theory Textbook
    measure of the opportunity cost or gain resulting from management’s decision to carry the debt rather than retire it. Zero Coupon Bonds A zero coupon or deep discount bond is a bond that does not carry a stated rate of interest; thus, the borrower makes no interest payments to the investor. As a...
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  • Banking Service Quality in Vietnam: a Comparison of Customers’ and Bank Staff’s Perceptions
    at the fair market value of the property. The lessee’s discount rate is the lower of the lessee’s incremental borrowing rate (the rate the lessee would have to borrow at to be able to buy the asset) or the lessor’s implicit interest rate. The lessor’s implicit interest rate is the one implicit...
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