BD_SM25 - Chapter 25 Leasing 25-1. a. From Eq. 25.1, for a...

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Unformatted text preview: Chapter 25 Leasing 25-1. a. From Eq. 25.1, for a five-year (60 month) lease, PV(Lease payments) = 200,000 60,000/(1 + .05/12) 60 = $153,248 Because the first lease payment is paid upfront, and the remaining 59 payments are paid as an annuity: 59 1 1 153, 248 L 1 1 .05 /12 (1 .05 /12) = +- + Therefore, L = $2,880. b. From Eq. 25.2, (see also Example 25.2) 60 1 1 200,000 M 1 .05 /12 (1 .05 /12) =- + Therefore, M = $3,774. 25-2. From Eq. 25.1, PV(Residual Value) = Purchase Price PV(Lease Payments) = $2 million - 83 1 1 22,000 1 1 .05 /12 (1 .05 /12) +- + = $436,974 The future residual value in 84 months is therefore: Residual Value = $436,974 (1+.05/12) 84 = $619,645 25-3. a. From Eq. 25.1, for a five-year (60 month) lease with a monthly interest rate of 6%/12 = 0.5%, PV(Lease payments) = 400,000 150,000/(1.005) 60 = $288,794 Because the first lease payment is paid upfront, and the remaining 59 payments are paid as an annuity: 59 1 1 288,794 L 1 1 .005 1.005 = +- Therefore, L = $5555. 206 Berk/DeMarzo Corporate Finance b. In this case, the lessor will only receive $1 at the conclusion of the lease. Therefore, the present value of the lease payments should be $400,000: 59 1 1 400,000 L 1 1 .005 1.005 = +- Therefore, L = $7695. c. In this case the lessor will receive $80,000 at the conclusion of the lease. Thus, PV(Lease payments) = 400,000 80,000/(1.005) 60 = $340,690 Because the first lease payment is paid upfront, and the remaining 59 payments are paid as an annuity: 59 1 1 340,690 L 1 1 .005 1.005 = +- Therefore, L = $6554. 25-4. (See Example 25.4) Capital Lease: property added to balance sheet, lease added to debt Assets Liabilities Cash 20 Debt 150 Prop., Plant, Equip. 255 Equity 125 Book D/E = 150 / 120 = 1.25 Operating Lease: no change to balance sheet. Book D/E = 70/125 = 0.56 25-5. a. A four-year fair market value lease with payments of $1,150 per month. PV(Lease Payments) = 47 1 1 1150 1 1 $46,559 .09/12 (1 .09/12) +- = + This is 46,559/50,000 = 93% of the purchase price. Because it exceeds 90% of the purchase price, this is a capital lease. b. A six-year fair market value lease with payments of $790 per month. The lease term is 75% or more of the economic life of the asset (75% 8 years = 6 years), and so this is a capital lease....
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This note was uploaded on 12/28/2009 for the course FEWEB CORPFIN taught by Professor Dorsman during the Spring '09 term at Vrije Universiteit Amsterdam.

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BD_SM25 - Chapter 25 Leasing 25-1. a. From Eq. 25.1, for a...

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