Lessee Eva Models

Lessee Eva Models - Evaluation from Lessees Angle: It deals...

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Evaluation from Lessee’s Angle: It deals with 4 different models. They are:- 1. Weingartner’s Model 2. Equivalent Loan Model 3. Bower-Herringer-Williamson Model (BHW Model) 4. Bower Model 1. Weingartner’s Model: It has 3 steps: 1. Compute NPV of Lease alternative i.e. NPV(L) 2. Compute NPV of Buy alternative i.e. NPV(B) 3. Lease if NPV(L) > NPV(B) Buy if NPV(B) > NPV(L) The discount rate to be used would be the Marginal Cost of Capital (K) for all items as follows: D E K = ------- x k D x (1-T) +------ x k C D+E D+E Where, D = Debt mix; E= Equity Mix k D = Marginal Cost of Debt k C = Marginal Cost of Equity T = Marginal Tax Rate In this model, Debt includes Lease finance i.e. (i) the target capital structure consists of mix of debt, lease finance and (ii) that each investment is deemed to be financed using this mix. In other models, capital structure includes debt and equity and they treat lease finance as a substitute for debt. 1
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In this the following formulae can be used- NPV(B) = - Initial Investment + PV [ EBDIT Stream x (1-Tax Rate)] + PV [Tax Shields on Depreciation]
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Lessee Eva Models - Evaluation from Lessees Angle: It deals...

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