Lecture Fundamentals of corporate finance - Chapter 22: Leasing

T22.1 Chapter Outline Chapter 22 Leasing Chapter Organization 22.1 Leases and Lease Types 22.2 Accounting and Leasing 22.3 Taxes, Canada Customs and Revenue Agency (CCRA) and Leases 22.4 The Cash Flows from Leasing 22.5 Lease or Buy? 22.6 A Leasing Paradox 22.7 Reasons for Leasing 22.8 Summary and Conclusions CLICK MOUSE OR HIT SPACEBAR TO ADVANCE Irwin/McGraw­Hill copyright © 2002 McGraw­Hill Ryerson, Ltd. T22.2 Buying versus Leasing (Figure 22.1) Buy Canadian Enterprises buys asset and uses asset; financing raised by debt Manufacturer of asset Lease Canadian Enterprises leases asset from lessor; the lessor owns the asset Manufacturer of asset Canadian Enterprises arranges financing and buys asset from manufacturer Canadian Enterprises 1. Uses asset 2. Owns asset Irwin/McGraw­Hill Lessor arranges financing and buys asset Lessor 1. Owns asset 2. Does not use asset copyright © 2002 McGraw­Hill Ryerson, Ltd Canadian Enterprises leases asset from lessor Lessee (Canadian Enterprises.) 1. Uses asset 2. Does not own asset Slide 2 T22.3 Types of Leases Operating lease Usually a shorter-term lease under which the lessor is responsible for insurance, taxes, and upkeep. Financial lease A longer-term, fully amortized lease under which the lessee is responsible for maintenance, taxes, and insurance. Tax-oriented leases Leveraged leases Sale-and-leaseback arrangements Irwin/McGraw­Hill copyright © 2002 McGraw­Hill Ryerson, Ltd Slide 3 T22.4 Leasing and the Balance Sheet (Table 22.1) A. Balance Sheet with Purchase (co. finances $100,000 truck with debt) Truck Other assets Total assets $100,000 100,000 $200,000 Debt Equity Debt plus equity $100,000 100,000 $200,000 B. Balance Sheet with Operating Lease (co. finances truck with an operating lease) Truck $ 0 Debt $ 0 Other assets Total assets 100,000 $100,000 Equity Debt plus equity 100,000 $100,000 C. Balance Sheet with Capital Lease (co. finances truck with a capital lease) Assets under capital Obligations under lease Other assets Total assets $100,000 100,000 $200,000 capital lease Equity Debt plus equity $100,000 100,000 $200,000 Irwin/McGraw­Hill copyright © 2002 McGraw­Hill Ryerson, Ltd Slide 4 T22.5 Criteria for a Capital Lease A capital lease must be disclosed on the balance sheet if at least one of the following criteria is met: The lease transfers ownership of the property to the lessee by the end of the term of the lease. The lessee can purchase the asset at a price below fair market value (bargain purchase price option) when the lease expires. The lease term is 75 percent or more of the estimated economic life of the asset. The present value of the lease payments is at least 90 percent of the fair market value of the asset at the start of the lease. Irwin/McGraw­Hill copyright © 2002 McGraw­Hill Ryerson, Ltd Slide 5 ... - tailieumienphi.vn