【正文】 t lease payments if the lease is qualified by the IRS. 1. The term must be less than 30 years. 2. There can be no bargain purchase option. 3. The lease should not have a schedule of payments that is very high at the start of the lease and low thereafter. 4. The lease payments must provide the lessor with a fair market rate of return. 5. The lease should not limit the lessee’s right to issue debt or pay dividends. 6. Renewal options must be reasonable and reflect fair market value of the asset. McGrawHill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. 216 Accounting and Leasing ? In the old days, leases led to offbalancesheet financing. ? Today, leases are either classified as capital leases or operating leases. ? Operating leases do not appear on the balance sheet. ? Capital leases appear on the balance sheet—the present value of the lease payments appears on both sides. McGrawHill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. 212 Operating Leases ? Usually not fully amortized. ? Usually require the lessor to maintain and insure the asset. ? Lessee enjoys a cancellation option. McGrawHill/Irwin Copyright 169。McGrawHill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. 213 Financial Leases The exact opposite of an operating lease. 1. Do not provide for maintenance or service by the lessor. 2. Financial leases are fully amortized. 3. The lessee usually has a right to renew the lease at expiry. 4. Generally, financial leases cannot be cancelled. McGrawHill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. 217 Accounting and Leasing Balance Sheet Truck is purchased with debt Truck $100,000 Debt $100,000 Land $100,000 Equity $100,000 Total Assets $200,000 Total Debt Equity $200,000 Operating Lease Truck Debt Land $100,000 Equity $100,000 Total Assets $100,000 Total Debt Equity $100,000 Capital Lease Assets leased $100,000 Obligations under capital lease $100,000 Land $100,000 Equity $100,000 Total Assets $200,000 Total Debt Equity $200,000 McGrawHill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. 2111 The Cash Flows of Leasing Consider a firm, ClumZee Movers, that wishes to acquire a delivery truck. The truck is expected to reduce costs by $4,500 per year. The truck costs $25,000 and has a useful life of 5 years. If the firm buys the truck, they will depreciate it straightline to zero. They can lease it for 5 years from Tiger Leasing with an annual lease payment of $6,250. McGrawHill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. 2115 NPV Analysis of the Decision ? A lease payment is like the debt service on a secured bond issued by the lessee. ? In the real world, many panies discount both the depreciation tax shields and the lease payments at the aftertax interest rate on secured debt issued by the lessee. McGrawHill/Irwin Copyright 169。 2023 by The McGrawHill Companies, Inc. All rights reserved. 2119 Debt Displacement and Lease Valuation Suppose ClumZee agrees to a lease payment of $6,250 before tax. This payment would support a loan of $25, 0 1 2 3 4 5O u ts ta n d i n g B a l a n c e o f th e L o a n $ 2 5 , 2 1 9 . 2 0 $ 2 0 , 6 5 5 . 1 6 $ 1 5 , 8 6 2 . 9 2 $ 1 0 , 8 3 1 . 0 7 $ 5 , 5 4 7 . 6 2 $ 0 . 0 0I n t e re s t $ 1 , 9 1 0 . 5 5 $ 1 , 5 6 4 . 7 8 $ 1 , 2 0 1 . 7 4 $ 8 2 0 . 5 4 $ 4 2 0 . 2 7T a x D e d u c t i o n o n i n t e re s t $ 6 4 9 . 5 9 $ 5 3 2 . 0 3 $ 4 0 8 . 5 9 $ 2 7 8 . 9 8 $ 1 4 2 . 8 9A ft e rt a x I n t e re s t E x p e n s e $ 1 , 2 6 0 . 9 6 $ 1 , 0 3 2 . 7 6 $ 7 9 3 . 1 5 $ 5 4 1 . 5 5 $ 2 7 7 . 3 8E x t ra C a s h t h a t p u rc h a s i n g fi rm g e n e re a t e s o v e r l e a s i n g fi rm 5 , 8 2 5 . 0 0$ 5 , 8 2 5 . 0 0$ 5 , 8 2 5 . 0 0$ 5 , 8 2 5 . 0 0$ 5 , 8 2 5 . 0 0$ ,25$,1$ ?? AfterTax Lease Payments –6,250 () = –$4,125 Fon