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Types of leases

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Discussions: 2 solid paragraph each with reference: Compare and contrast two types of leases and describe the advantages and disadvantages of each. Which type of lease would produce the lowest risk?In your firm, what benefits does leasing offer, compared to the purchase of an asset? Provide examples

This is another section (keep it brief and on point where possible)check attachment for needed case study1. What is the present value of owning the equipment? (Hint: Set up a time line that shows the net cash flows over the period  to , and then find the PV of these net cash flows, or the PV cost of owning.)

2. Explain the rationale for the discount rate you used to find the PV.

3. What is Lewis’s present value of leasing the equipment? (Hint: Again, construct a time line.)

4. What is the net advantage to leasing (NAL)? Does your analysis indicate that Lewis should buy or lease the equipment? Explain.

5. Now assume that the equipment’s residual value could be as low as $0 or as high as $400,000, but $200,000 is the expected value. Because the residual value is riskier than the other relevant cash flows, this differential risk should be incorporated into the analysis. Describe how this could be accomplished. (No calculations are necessary, but explain how you would modify the analysis if calculations were required.) What effect would the residual value’s increased uncertainty have on Lewis’ lease-versus-purchase decision?

6. The lessee compares the present value of owning the equipment with the present value of leasing it. Now put yourself in the lessor’s shoes. In a few sentences, how should you analyze the decision to write or not to write the lease?


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