Lease Financing

Overview: The slide show defines a lease as a tool that allows an individual or a firm to make economic use of an asset for a stated period of time without obtaining ownership interest in it. While talking of lease contract it defines Lessee who obtains use of an asset for specific period of time and agrees to make a series of payments to lessor. It further points out the different providers of lease financing and the classes of leases (operating, financial, leveraged and direct). A leveraged lease is a three-party financial lease consisting of the lessee who acquires the use of the asset, the lessor who holds an equity interest in the asset (at least 20%), and a lender (or lenders) who finance the purchase of the asset by the lessor. The advantages to different parties in case of leveraged lease are also discussed. The advantages to leasing are - lower payments because tax benefits accrue to lessor, lease agreements tend to be more flexible, lessor is able to obtain a higher salvage value, piecemeal financing, avoidance of some risk of obsolescence, smoother earnings and EPS etc. The different tax and accounting considerations are taken into consideration. The relevance of leasing in the case of small firms is explained quite logically as there are fewer restrictive covenants, and less cash is required "up front" though there are loss of tax benefits and salvage value obsolescence. The net advantages of leasing give a brief idea of the whole discussion.

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Format: HTML | Size: 172KB | Date: Jan 2003 | Pages: 24