78106_18_Web_Ch18C_p01-02 - WEB EXTENSION 18C Leveraged...

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WEB EXTENSION 18C Leveraged Leases W hen leasing began, only two parties were involved in a lease transaction the lessor, who put up the money, and the lessee. In recent years, however, a new type of lease, the leveraged lease , has come into widespread use. Under a leveraged lease, the lessor arranges to borrow part of the required funds, generally giv- ing the lender a first mortgage on the plant or equipment being leased. The lessor still receives the tax benefits associated with accelerated depreciation. However, because financial leverage has been used, the lessor now has a riskier position. Such leveraged leases, often with syndicates of wealthy individuals who become owner-lessors because they are seeking tax shelters, are an important part of the financial scene today. Incidentally, whether or not a lease is leveraged is unimportant to the lessee; from the lessee s standpoint, the method of analyzing a proposed lease is unaffected by whether or not the lessor borrows part of the required capital. The lessor
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This note was uploaded on 05/03/2010 for the course FRR 3032 taught by Professor Mr.wroshr during the Spring '10 term at Crafton Hills College.

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78106_18_Web_Ch18C_p01-02 - WEB EXTENSION 18C Leveraged...

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