Академический Документы
Профессиональный Документы
Культура Документы
Lease Finance
Lease is contract between the owner of the asset
(Lessor) and the user (Lessee) of the asset, wherein the
Lessor gives the right to use the asset to the Lessee for
a consideration (Lease Rentals) over an agreed period
of time (Lease period or tenure).
At the end of the lease period, the leased asset reverts
back to the Lessor, unless the lease is renewed for
another term.
Leasing separates the Ownership and Usage of the
asset as two separate economic activities.
Leasing
Leasing
Operating Lease
Short-term Lease: Lease period is less than the
economic life of the asset.
Asset leased is not fully amortised: Lease rentals
required to be paid under a lease agreement are not
sufficient to recover fully the investment in the leased
asset.
Lease is cancellable at short notice without substantial
penalty,
Lessor is responsible for the insurance & maintenance
of the asset.
Lessor bears the risk of obsolescence.
E.g.: Taking a Taxi for travelling from one place to
another
Lessor retains most of the risks associated with the
ownership of the asset in case of Operating Lease.
Leasing
Leases
Equipment to
User Firm
(Lessee)
Sells
Equipment to
Leasing
Firm
(Lessor)
Leases
Equipment to
User Firm
(Lessee)
7
Sells
Equipment to
User Firm
(Old Owner/Lessee)
Through Sale & Lease Back, the Firm is able to unlock its
investment in an existing asset, realises liquidity and at the same
time continues to enjoy the use of the asset.
Leasing
Lease Line: A lease life is similar to a bank line of credit where the
Lessee is allowed to add on to the leased asset under the same
basic terms without negotiating a fresh lease every time a new
equipment is leased. e.g.: Leasing of Bottles for beverages.
Upgrade Lease: Such Lease provides for automatic exchanges of
out-dated equipment with the latest version.
Sales-Aid Lease: Equipment manufacturer leases instead of sale.
Leasing
10
40,00,000
25 = Rs.1,00,000/1000
11
Leasing
Annual:
30,00,000 + 10,80,000
=Rs.13,60,000.00
3
Monthly
30,00,000 + 10,80,000
=Rs.1,13,333.33
36
12
Interest
Installment
Principal
Repayment
(36+35+34+.+25) /
(36+35++1)
= 366/666
10,80,000*366/666
= 5,93,513.51
13,60,000.00
7,66,486.49
(24+23+22+.+13) /
(36+35++1)
= 222/666
10,80,000*222/666
= 3,60,000.00
13,60,000.00
10,00,000.00
(12+11+10+.+1) /
(36+35++1)
= 78/666
10,80,000*78/666
= 1,26,486.49
13,60,000.00
12,33,513.51
10,80,000.00
40,80,000.00
30,00,000.00
Total
Leasing
13
34
35
36
-800
+30.89 +30.89 +30.89
14
Instalments
Total CFs
34
36
-800
+30.89 +30.89
+30.89 +30.89
Leasing
35
= 27.21%
15
+38.61
+38.61
+38.61
34
35
36
+38.61
+38.61
+38.61
-1000
Instalments
Deposit
+200
Total CFs
-800
-312.79
+38.61
+38.61
+38.61
+38.61
+38.61
-274.18
16
Instalments
Deposit
Total CFs
+38.61
+38.61
+38.61
34
35
+38.61
+38.61
36
-1000
+38.61
+200
-761.39
-312.79
+38.61
+38.61
+38.61
+38.61
+38.61
-312.79
Leasing
Instalments in Arrears
Instalments in Advance
Down payment
25.35%
27.21%
Deposit
31.47%
35.14%
17
Lease Evaluation
Lease Evaluation
ABCL has identified an equipment costing Rs. 10 Lacs with an
expected useful life of 8 years. The equipment shall increase the
earnings (EBDIT) by Rs. 3 Lacs pa. The equipment is eligible for
depreciation @ 25% pa on WDV basis and expected to be sold as
scrap at its book value. First Leasing Company can provide the
equipment on an 8-year lease @ Rs.1.75 Lacs pa, payable in arrears.
The companys post-tax cost of capital is 10%. Assume the tax rate
as 35%.
Evaluate the lease proposal.
Lease
19
Lease
20
Lease
21
Lease
22
23
Lease
24
Lease
25
Lease Evaluation
VXL Limited requires an equipment costing Rs. 40 Lacs. The
equipment is expected to increase its annual revenues by Rs. 30
Lacs besides increasing the operating costs (other than depreciation
& interest) by Rs. 8 Lacs. The salvage value expected after 5 years
(its useful life) would be Rs. 4 Lacs. The companys D/E ratio is 1:1,
cost of debt is 14% and cost of equity is 20%. Assume the tax rate as
50% and depreciation rate as 33.33% (WDV basis).
Axis Bank can provide lease finance for a 5-year period @ Rs. 70.50
per quarter per Rs.1000/-, payable quarterly in advance.
Evaluate the lease proposal from VXL Limiteds point of view.
Lease
27
Leasing
28
Leasing
29
Leasing
30
Leasing
31
Leasing
32
1
1
PVIFA AD = (1+r)
n
r r(1+r)
1
1
(1.037802)=14.3826
20
0.037802
0.037802(1.037802)
Leasing
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
PVIFA @
3.7802%
1.0000
0.9636
0.9285
0.8947
0.8621
0.8307
0.8004
0.7713
0.7432
0.7161
0.6900
0.6649
0.6407
0.6173
0.5948
0.5732
0.5523
0.5322
0.5128
0.4941
14.3826
33
Leasing
34
Leasing
35
Leasing
36
PVIFA @
2.21%
1.0000
1
2
3
0.9784
0.9572
0.9365
4
5
6
7
0.9162
0.8964
0.8770
0.8580
8
9
10
11
0.8395
0.8213
0.8035
0.7862
12
13
14
0.7692
0.7525
0.7362
15
16
17
18
0.7203
0.7047
0.6895
0.6746
19
0.6600
Leasing
PVIFA
16.3772
37
X t (1-T)+Dt T
Sn
NPV(P)=-A+
+
t
n
(1+k)
(1+k)
t=1
n
X t (1-T)+L t T n
Lt
NPV(L)=
-
t
t
(1+k*)
t=1
t=1 (1+k*)
n
X t (1-T)-L t (1-T)
=
t
(1+k*)
t=1
(assume k = k*)
NPV(L)-NPV(P)=NAL
Leasing
38
n X (1-T) n
X t (1-T) n L t T n L t
Dt T
Sn
t
=
+
+A-
t
t
t
t
t
(1+k)n
t=1 (1+k)
t=1 (1+k) t=1 (1+k)
t=1 (1+k)
t=1 (1+k)
n
L t (1-T) n Dt T
Sn
NAL=A-
t
t
n
(1+k)
t=1 (1+k)
t=1 (1+k)
n
Asset
Cost
Leasing
PV of Depreciation Tax
Shield
PV of Salvage
Value
39
Outflow
Inflow
Outflow
Hire Purchase:
Lease
Outflow
Inflow
Outflow
Principal Repayment
Outflow
Inflow
Salvage Value
Inflow
46
Lease
47
Lease
48
Interest * SYD%
Lease
49
Lease
50
51
Lease
53
Lease
54