TAILIEUCHUNG - Algorithm for lease terms, cost and profit

Most elements of the weighted average cost of capital are easy to compute. Unlike bonds, mortgages and bank loans, the cost of lease capital is never stated. Leases vary widely in application fees, down payments, deposits, prepayments and length all of which make it difficult to specify the cost of lease capital in a consistent manner. Such terms also make it difficult to compare leasing to other forms of financing. Lessors have a similar problem. The return on capital invested in lease assets is difficult to calculate. A lease with a lower monthly payment may provide greater returns than one with higher payments if terms are properly specified. A problem that both lessees and lessors have is that the time value of money functions used to compute the lease cost of capital give rise to non-linear equations. Solution of those equations is beyond the skill of most finance and accounting practitioners. This article provides a standardized framework for specifying lease terms and an algorithm for solving the resulting non-linear equations. This algorithm can be implemented using common spreadsheet software. | Journal of Applied Finance Banking vol. 8 no. 6 2018 157-170 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2018 Algorithm for Lease Terms Cost and Profit David E. Vance1 Abstract Most elements of the weighted average cost of capital are easy to compute. Unlike bonds mortgages and bank loans the cost of lease capital is never stated. Leases vary widely in application fees down payments deposits prepayments and length all of which make it difficult to specify the cost of lease capital in a consistent manner. Such terms also make it difficult to compare leasing to other forms of financing. Lessors have a similar problem. The return on capital invested in lease assets is difficult to calculate. A lease with a lower monthly payment may provide greater returns than one with higher payments if terms are properly specified. A problem that both lessees and lessors have is that the time value of money functions used to compute the lease cost of capital give rise to non-linear equations. Solution of those equations is beyond the skill of most finance and accounting practitioners. This article provides a standardized framework for specifying lease terms and an algorithm for solving the resulting non-linear equations. This algorithm can be implemented using common spreadsheet software. JEL classification numbers G23 G32 D24 Keywords Lease Lease Cost Lease Terms Cost of Capital Lease Profit 1 Introduction A significant portion of new capital expenditures are financed by leases rather than through bank loans or equity. The Equipment Leasing Finance 1 Rutgers University USA Article Info Received May 22 2018. Revised July 28 2018 Published online November 1 2018 158 David E. Vance Association estimates there will be 120 billion in new equipment leases in 2018 1 . The issue addressed in this paper is how to compute the cost of capital for financial leases. Financial leases are a substitute for loans and have minimal or no buyouts at lease end. Most elements of the .

• Tài chính doanh nghiệp
• Lease cost
• Lease terms
• Cost of capital
• Lease profit
• Algorithm for lease terms
• Purchase price
• Lease agreement
• Market specific
• financial environment
• Future development
• rents and returns