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Unformatted text preview: at has any of the following elements:
1. The lease transfers ownership of the property to the lessee by the end of the
2. The lease contains an option to purchase the property at a “bargain price.”
Such an option must be exercisable at a “fair market value.”
3. The lease term is equal to 75 percent or more of the estimated economic life
of the property (exceptions exist for property leased toward the end of its
usable economic life).
4. At the beginning of the lease, the present value of the lease payments is equal
to 90 percent or more of the fair market value of the leased property.
The emphasis in this chapter is on financial leases, because they result in inescapable long-term financial commitments by the firm. Leasing Arrangements
Lessors use three primary techniques for obtaining assets to be leased. The
method depends largely on the desires of the prospective lessee.
A lease under which a lessor
owns or acquires the assets that
are leased to a given lessee.
A lease under which the lessee
sells an asset for cash to a
prospective lessor and then
leases back the s...
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This document was uploaded on 01/19/2014.
- Fall '13