Professional Documents
Culture Documents
A B C
1 HOW NOT TO ANALYZE A LEASE
2 Asset cost 600,000
3 Interest rate 12%
4 Lease rental payment 140,000
5 Annual depreciation 100,000
6 Tax rate 40%
7
8 NPV(leasing) 386,801 #VALUE!
9 NPV(buying) 435,544 #VALUE!
Page 1
UN-3B
A B C D E F G H
1 EQUIVALENT LOAN METHOD
2 Asset cost 600,000
3 Interest rate 12%
4 Lease rental payment 140,000
5 Annual depreciation 100,000
6 Tax rate 40%
7
8 Year 0 1 2 3 4 5 6
9
10 After-tax cash flows from leasing
11 After-tax lease rental -84,000 -84,000 -84,000 -84,000 -84,000 -84,000
12
13 After-tax cash flows from buying the asset
14 Asset cost -600,000
15 Depreciation tax shield 40,000 40,000 40,000 40,000 40,000 40,000
16 Net cash from buying -600,000 40,000 40,000 40,000 40,000 40,000 40,000
17
18 Differential cash flow: Lease saves lessor
19 Lease minus buy 516,000 -124,000 -124,000 -124,000 -124,000 -124,000 -40,000
20
21 IRR of differential cash flow 8.30% #VALUE!
22
23 Decision?? Buy #VALUE!
24
25
A B C D E F G H
1
THE LESSOR'S PROBLEM
Calculating the lowest acceptable lease rate
2 Asset cost 600,000
3 Interest rate 12%
4 Lowest acceptable lease payment 135,686 <-- Computed either with Goal Seek or Solver
5 Annual depreciation 100,000
6 Tax rate 40%
7
8 Year 0 1 2 3 4 5 6
9
10 Lessor after-tax cash flows from leasing
11 After-tax lease rental 81,412 81,412 81,412 81,412 81,412 81,412
12
13 Lessor after-tax cash flows from buying the asset
14 Asset cost -600,000
15 Depreciation tax shield 40,000 40,000 40,000 40,000 40,000 40,000
16 Net cash from buying -600,000 40,000 40,000 40,000 40,000 40,000 40,000
17
18 Lessor cash flows
19 Lease + buy -518,588 121,412 121,412 121,412 121,412 121,412 40,000
20
21 IRR of differential cash flow 7.40% #VALUE!
22
23
A B C D E F G H I
1 RESIDUAL VALUES IN LEASE ANALYSIS
2 Asset cost 600,000
3 Interest rate 12%
4 Lease rental payment 140,000
5 Annual depreciation 100,000
6 Tax rate 40%
7 Residual value 100,000 <-- Anticipated to be realized in year 7; fully taxed
8
9 Year 0 1 2 3 4 5 6 7
10
11 After-tax cash flows from leasing
12 After-tax lease rental -84,000 -84,000 -84,000 -84,000 -84,000 -84,000
13
14 After-tax cash flows from buying the asset
15 Asset cost -600,000
16 Depreciation tax shield 40,000 40,000 40,000 40,000 40,000 40,000
17 After-tax residual 60,000
18 Net cash from buying -600,000 40,000 40,000 40,000 40,000 40,000 40,000 60,000
19
20 Differential cash flow
21 Lease minus buy 516,000 -124,000 -124,000 -124,000 -124,000 -124,000 -40,000 -60,000
22
23 IRR of differential cash flow 10.49% #VALUE!
24
25 Decision?? Buy #VALUE!
UN-3B
A B C D E F G H I J