公司理财chap021课件.ppt

Leasing KeyConceptsandSkills Understandthedifferenttypesofleases UnderstandhowtoapplyNPVtotheleasevs buydecision Understandtheimportanceoftaxratesindeterminingthebenefitofleasing ChapterOutline 21 1TypesofLeases21 2AccountingandLeasing21 3Taxes theIRS andLeases21 4TheCashFlowsofLeasing21 5ADetouronDiscountingandDebtCapacitywithCorporateTaxes21 6NPVAnalysisoftheLease versus BuyDecision21 7DebtDisplacementandLeaseValuation21 8DoesLeasingEverPay TheBaseCase21 9ReasonsforLeasing21 10SomeUnansweredQuestions 21 1TypesofLeases TheBasicsAleaseisacontractualagreementbetweenalesseeandlessor Thelessorownstheassetandforafeeallowsthelesseetousetheasset BuyingversusLeasing Buy Lease FirmUbuysassetandusesasset financedbydebtandequity Lessorbuysasset FirmUleasesit Manufacturerofasset Equityshareholders Creditors OperatingLeases UsuallynotfullyamortizedUsuallyrequirethelessortomaintainandinsuretheassetLesseeenjoysacancellationoption FinancialLeases Theexactoppositeofanoperatinglease Donotprovideformaintenanceorservicebythelessor Financialleasesarefullyamortized Thelesseeusuallyhasarighttorenewtheleaseatexpiry Generally financialleasescannotbecancelled SaleandLease Back AparticulartypeoffinancialleaseOccurswhenacompanysellsanassetitalreadyownstoanotherfirmandimmediatelyleasesitfromthem Twosetsofcashflowsoccur Thelesseereceivescashtodayfromthesale Thelesseeagreestomakeperiodicleasepayments therebyretainingtheuseoftheasset LeveragedLeases Aleveragedleaseisanothertypeoffinanciallease Athree sidedarrangementbetweenthelessee thelessor andlenders Thelessorownstheassetandforafeeallowsthelesseetousetheasset Thelessorborrowstopartiallyfinancetheasset Thelenderstypicallyuseanonrecourseloan Thismeansthatthelessorisnotobligatedtothelenderincaseofadefaultbythelessee LeveragedLeases Lessorbuysasset FirmUleasesit Manufacturerofasset Lessor 1 Ownsasset 2 Doesnotuseasset Equityshareholders Creditors Lessee FirmU 1 Usesasset 2 Doesnotownasset Thelenderstypicallyuseanonrecourseloan Thismeansthatthelessorisnotobligatedtothelenderincaseofadefaultbythelessee Lessorborrowsfromlendertopartiallyfinancepurchase Intheeventofadefaultbythelessor thelenderhasafirstlienontheasset Also theleasepaymentsaremadedirectlytothelenderafteradefault 21 2AccountingandLeasing Intheolddays leasesledtooff balance sheetfinancing Today leasesareeitherclassifiedascapitalleasesoroperatingleases Operatingleasesdonotappearonthebalancesheet Capitalleasesappearonthebalancesheet thepresentvalueoftheleasepaymentsappearsonbothsides AccountingandLeasing BalanceSheet TruckispurchasedwithdebtTruck 100 000Debt 100 000Land 100 000Equity 100 000TotalAssets 200 000TotalDebt Equity 200 000OperatingLeaseTruckDebtLand 100 000Equity 100 000TotalAssets 100 000TotalDebt Equity 100 000CapitalLeaseAssetsleased 100 000Obligationsundercapitallease 100 000Land 100 000Equity 100 000TotalAssets 200 000TotalDebt Equity 200 000 CapitalLease Aleasemustbecapitalizedifanyoneofthefollowingismet Thepresentvalueoftheleasepaymentsisatleast90percentofthefairmarketvalueoftheassetatthestartofthelease Theleasetransfersownershipofthepropertytothelesseebytheendofthetermofthelease Theleasetermis75percentormoreoftheestimatedeconomiclifeoftheasset Thelesseecanbuytheassetatabargainpriceatexpiry 21 3Taxes theIRS andLeases Theprincipalbenefitoflong termleasingistaxreduction Leasingallowsthetransferoftaxbenefitsfromthosewhoneedequipmentbutcannottakefulladvantageofthetaxbenefitsofownershiptoapartywhocan Naturally theIRSseekstolimitthis especiallyiftheleaseappearstobesetupsolelytoavoidtaxes Taxes theIRS andLeases ThelesseecandeductleasepaymentsiftheleaseisqualifiedbytheIRS Thetermmustbelessthan30years Therecanbenobargainpurchaseoption Theleaseshouldnothaveascheduleofpaymentsthatisveryhighatthestartoftheleaseandlowthereafter Theleasepaymentsmustprovidethelessorwithafairmarketrateofreturn Theleaseshouldnotlimitthelessee srighttoissuedebtorpaydividends Renewaloptionsmustbereasonableandreflectfairmarketvalueoftheasset 21 4TheCashFlowsofLeasing Considerafirm ClumZeeMovers thatwishestoacquireadeliverytruck Thetruckisexpectedtoreducecostsby 4 500peryear Thetruckcosts 25 000andhasausefullifeof5years Ifthefirmbuysthetruck theywilldepreciateitstraight linetozero Theycanleaseitfor5yearsfromTigerLeasingwithanannualleasepaymentof 6 250 TheCashFlowsofLeasing CashFlows BuyYear0Years1 5Costoftruck 25 000After taxsavings4 500 1 34 2 970DepreciationTaxShield 5 000 34 1 700 25 000 4 670 CashFlows LeaseYear0Years1 5LeasePayments 6 250 1 34 4 125After taxsavings4 500 1 34 2 970 1 155 TheCashFlowsofLeasing CashFlows LeasingInsteadofBuyingYear0Years1 5 25 000 1 155 4 670 5 825 Wecouldalsoviewthecashflowsasbuyingminusleasing whichwouldsimplychangethesignsonthecashflows Thediscountrateistheaftertaxrateonthefirm ssecureddebt 21 5ADetouronDiscountingandDebtCapacitywithCorporateTaxes PresentValueofRisklessCashFlowsInaworldwithcorporatetaxes firmsshoulddiscountrisklesscashflowsattheaftertaxrisklessrateofinterest OptimalDebtLevelandRisklessCashFlowsInaworldwithcorporatetaxes onedeterminestheincreaseinthefirm soptimaldebtlevelbydiscountingafutureguaranteedaftertaxinflowattheaftertaxrisklessinterestrate 21 6NPVAnalysisoftheLease vs BuyDecision Aleasepaymentislikethedebtserviceonasecuredbondissuedbythelessee Intherealworld manycompaniesdiscountboththedepreciationtaxshieldsandtheleasepaymentsattheaftertaxinterestrateonsecureddebtissuedbythelessee NPVAnalysisoftheLease vs BuyDecision CF1 F1 CF0 5 5 825 219 20 25 000 I NPV 5 NPVAnalysisoftheLease vs BuyDecision CF1 F1 CF0 5 5 825 219 20 25 000 I NPV 5 21 7DebtDisplacementandLeaseValuation Consideringtheissuesofdebtdisplacementallowsforamoreintuitiveunderstandingoftheleaseversusbuydecision Leasesdisplacedebt thisisahiddencostofleasing Ifafirmleases itwillnotuseasmuchregulardebtasitwouldotherwise Theinteresttaxshieldwillbelost DebtDisplacementandLeaseValuation ThedebtdisplacedbyleasingresultsinforgoneinteresttaxshieldsonthedebtthatClumZeemoversdidnottakeonwhentheyleasedinsteadofboughtthetruck SupposeClumZeeagreestoaleasepaymentof 6 250beforetax Thispaymentwouldsupportaloanof 25 219 20 seethenextslide Inexchangeforthis theygettheuseofatruckworth 25 000 ClearlytheNPVisanegative 219 20 whichagreeswithourearliercalculations DebtDisplacementandLeaseValuation Calculatetheincreaseindebtcapacitybydiscountingthedifferencebetweenthecashflowsofthepurchaseandthecashflowsoftheleaseusingtheaftertaxinterestrate PMT N PV 5 5 825 25 219 20 I Yr FV 5 0 21 8DoesLeasingEverPay TheBaseCase Intheaboveexample ClumZeeMoverschosetobuy becausetheNPVofleasingwasanegative 219 20NotethatthisistheoppositeoftheNPVthatTigerLeasingwouldhave CF1 F1 CF0 5 5 825 219 20 25 000 I NPV 5 21 9ReasonsforLeasing GoodReasonsTaxesmaybereducedbyleasing Theleasecontractmayreducecertaintypesofuncertainty Transactionscostscanbehigherforbuyinganassetandfinancingitwithdebtorequitythanforleasingtheasset BadReasonsAccounting ATaxArbitrage SupposeClumZeemoversisactuallyinthe25 taxbracketandTigerLeasingisinthe34 taxbracket IfTigerreducestheleasepaymentto 6 200 canbothfirmshaveapositiveNPV CashFlows TigerLeasingYear0Years1 5Costoftruck 25 000DepreciationTaxShield5 000 34 1 700LeasePayments6 200 1 34 4 092 25 000 5 792NPV 76 33 ATaxArbitrage CashFlowsClumZeeMovers LeasingInsteadofBuyingYear0Years1 5Costoftruckwedidn tbuy 25 000LostDepreciationTaxShield5 000 25 1 250After TaxLeasePayments6 200 1 25 4 650 25 000 5 900NPV 543 91 TigerLeasing sBreakevenPayment WhatisthesmallestleasepaymentthatTigerLeasingwillaccept SettheirNPVtozeroandsolvefor Lmin Year0Years1 5Costoftruck 25 000DepreciationTaxShield5 000 34 1 700LeasePayments Lmin 1 34 Lmin 1 34 25 000 1 700 Lmin 1 34 TigerLeasing sBreakevenPayment Steponeistofindtheaftertaxcostofthetruck Steptwoistofindtheaftertaxpaymentrequired CF1 F1 CF0 5 1 700 17 639 89 25