Unformatted text preview: Companies may be able to structure variable payment terms as well, to accommodate seasonal cash flow patterns, and they may also be able to upgrade equipment during the
Before jumping into lease financing, however, companies such as Sebago Brewing must
carefully analyze the whole lease package—down payment if required, monthly payments, and
residual (remaining) value of the equipment at the end of the lease. They must determine the
after-tax cash flows for both leasing and purchasing, taking into account depreciation, maintenance costs, purchase options, and related items. They should then calculate the present value
(PV) of these outflows and choose the one with the lower PV.
In this chapter, we’ll demonstrate how to approach this analysis for lease financing, a
hybrid financing technique that incorporates elements of debt and equity. Other hybrids that we’ll
describe include convertible securities and stock purchase warrants. Then we’ll look at derivative securities such as sto...
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