Corporate Lease Analysis: A Guide to Concepts and Evaluation

Corporate Lease Analysis: A Guide to Concepts and Evaluation

Corporate Lease Analysis: A Guide to Concepts and Evaluation

Corporate Lease Analysis: A Guide to Concepts and Evaluation


This comprehensive work on the topic of lease financing emphasizes decision-making and the application of leasing theory to actual business situations. The various types of leases and their advantages, disadvantages, and appropriate usage are thoroughly delineated in a clear and readable style. The general topics covered include leasing concepts, analytical foundations of leasing, reporting for leases, evaluating lease transactions, and the role of leasing in modern financial management. Simple numerical examples introduce various lease valuation methods and illustrate differences in rates of return and rates of discount.


Chapters 2 and 3 analyzed three primary factors responsible for fueling the explosive growth in the leasing industry. First, leases provide companies with a means of financing when traditional sources of financing are unattractive or unavailable. Second, leases minimize the risks of holding assets subject to technological obsolescence. Finally, leases present a variety of tax benefits.

The tax consequences relevant to a lease-buy decision include the effect of a swap of tax benefits, such as accelerated depreciation, for reduced lease payments. Other consequences include depreciation recapture, the alternative minimum tax, the tax treatment of rental payments, and the passive-activity-loss and at-risk rules.

Leasing is an attractive alternative for companies with exposure to the alternative minimum tax. the 1986 Tax Reform Act (1986 TRA) made the alternative-minimum-tax rules applicable to corporations, and included other provisions that affected the tax benefits of leasing. It repealed the investment tax credit, decreased the amount of accelerated-depreciation deductions, and repealed safe-harbor and financing leases. in the wake of 1986TRA, many commentators lamented the questionable vitality of equipment leasing. However, their dire predictions have not necessarily been realized.

As Exhibit 5-1 shows, by replacing the Accelerated Cost Recovery System (ACRS) with Modified Accelerated Cost Recovery System (MACRS), repealing the investment tax credit, and imposing the alternative minimum tax, 1986 tra increased the cost of asset ownership. As a result of the alternative minimum tax rules, leasing may be an even more attractive option, as this chapter and Chapter 8 explain. Another reason equipment leasing is still attractive is that equipment leasing offers advantages, independent of tax consequences.

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