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Chapter 27 - Leasing
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CHAPTER 27
LEASING
CHAPTER WEB SITES
Section
Web Address
CHAPTER ORGANIZATION
27.1 Leases and Lease Types
27.2 Accounting and Leasing
Chapter 27 - Leasing
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ANNOTATED CHAPTER OUTLINE
27.1 Leases and Lease Types
Basic Terminology:
A. Leasing versus Buying
B. Operating Leases
C. Financial Leases
Chapter 27 - Leasing
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Real-World Tip: As described by Professor James Johnson in his
Notice that: the first option does not say “fair market value” –
thus, the lessor can insist on an exorbitant price, effectively taking
this option off the table. The second option does not specify the
Chapter 27 - Leasing
Real-World Tip: Traditionally, sale and leaseback arrangements
have involved expensive assets (e.g., buildings, airliners, railroad
27.2 Accounting and Leasing
Statement of Financial Accounting Standards No. 13, “Accounting
for Leases.”
A lease is declared a capital lease if one or more of the following
criteria is met:
27.3 Taxes, the IRS and Leases
A valid lease from the IRS’s perspective will meet these standards:
Chapter 27 - Leasing
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27.4 The Cash Flows From Leasing
A. The Incremental Cash Flows
Three important cash flow differences between leasing and buying:
B. A Note on Taxes
27.5 Lease or Buy?
A. A Preliminary Analysis
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Lecture Tip: Here is another example of the lease versus buy
decision. A florist can purchase a delivery truck from her local GM
dealer for $25,000. The GM dealer will also lease the truck for
Unfortunately, lease versus buy decisions are not this simple.
Taxes are very important. In this lease, the entire lease payment is
simplicity, assume straight-line depreciation.
Year
0
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2
3
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Chapter 27 - Leasing
B. Three Potential Pitfalls
Potential pitfalls to using the implied rate of interest on the lease
instead of the NPV:
C. NPV Analysis
D. A Misconception
27.6 A Leasing Paradox
Chapter 27 - Leasing
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27.7 Reasons For Leasing
A. Good Reasons for Leasing
B. Dubious Reasons for Leasing
C. Other Reasons for Leasing
27.8 Summary and Conclusions
