Lease Analysis Is Affected by Assumptions About the Asset Pool

question 48

Essay

Lease analysis is affected by assumptions about the asset pool in which the leased asset is kept.Explain how the results of such analysis would be different if the asset was alone or if many assets in it pool at the end of a lease contract.Consider the situation where the tax rate is 40%, CCA = 30% and the discount rate were 10%, and the difference between UCC and salvage were $10,000.

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Definitions:

Lease-Purchase Analysis

A financial evaluation technique used to determine the most cost-effective option between leasing an asset and purchasing it outright.

Sale and Leaseback

A financial transaction where one sells an asset and leases it back for the long-term; thus, one continues to be able to use the asset but does not own it.

Balance Sheet

A financial statement that provides a snapshot of a company's financial condition at a specific point in time, detailing assets, liabilities, and equity.

Incremental Cash Flows

The additional cash flow generated by a company as a result of undertaking a new project or investment.