Unformatted text preview: e present value of the cash outflows using the appropriate discount
e. For the lease alternative, calculate the following:
(1) The after-tax cash outflow for each of the next 3 years.
(2) The present value of the cash outflows using the appropriate discount
rate applied in part d(3).
f. Compare the present values of the cash outflow streams for the purchase [in
part d(3)] and lease [in part e(2)] alternatives, and determine which would be
preferable. Explain and discuss your recommendation. WEB EXERCISE
W Go to the Equipment Leasing Association’s Lease Assistant educational portal,
www.leaseassistant.org. Click on Leasing Basics and work through the links to
answer the following questions. CHAPTER 16 Hybrid and Derivative Securities 709 1. What are the three ways to finance equipment through leases?
2. Summarize the benefits of leasing equipment. Which would be the most
important to you if you were a small business owner? If you were a financial
manager at a major corporation?
3. Compare and contrast leases and loans.
Then click on Informed Decisions and How Others Have Leveraged Leasing.
Choose one of the cases and answer the following questions on the basis of the
4. What type of equipment was the company leasing, and why?
5. What benefits did the company achieve through leasing? Remember to check the book’s Web site at
for additional resources, including additional Web exercises....
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