lecture6 Theory_of_Leasing - Theory of Leasing 10 October...

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Theory of Leasing 10 October 2005
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Corporate Finance Types of lease contracts Financial leases: Non cancelable contracts Asset is fully amortized with lease payments Secured by the lessee’s assets From lessee’s point of view, equivalent to a debt contract Operating leases: Opposite properties Lessee has options (e.g. cancel) For the lessor is riskier
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Corporate Finance Lessor’s point of view If ρ (lease) is the unlevered cost of capital for lease contracts, the bank’s cost of capital is The lessor’s problem is a simple capital budgeting exercise: Assume: Investment (I) = 10,000 T(ax) = 40% WACC B = 6% Life (N) = 5 + - = S B B T lease WACC B 1 ) ( ρ
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Corporate Finance Lessor’s point of view For lease payments L t the NPV of the lease is given by (x1000): NPV ≥ 0 ↔ L t ≥ 2,624, which is the minimum lease payment for the lessor = + × + - + - = 5 1 ) 06 . 0 1 ( 2 4 . 0 ) 4 . 0 1 ( 10 t t t L NPV
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This note was uploaded on 11/22/2010 for the course FINANCE 100104 taught by Professor Pfofessorking during the Spring '10 term at Erusmus University Rotterdam .

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lecture6 Theory_of_Leasing - Theory of Leasing 10 October...

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