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4. Capital Leases vs. Operating Leases Impact of Leasing on the Income Statement Advantages of Leasing Leasing Obtaining Capital: Methods of Long-Term Financing > Leasing Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_109&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=di rect&utm_source=boundless

5. The finance company is the legal owner of the asset during duration of the lease. However the lessee has control over the asset providing them the benefits and risks of (economic) ownership. An operating lease is a lease whose term is short compared to the useful life of the asset or piece of equipment (an airliner, a ship, etc. ) being leased. Unlike a Financial Lease or Finance lease, at the end of the operating lease the title to the asset does not pass to the lessee, but remains with the lessor. Capital Leases vs. Operating Leases Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/obtaining-capital-methods-of-long-term-financing-14/leasing-109/capital- leases-vs-operating-leases-462- 3804?campaign_content=book_192_section_109&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Lease View on Boundless.com Obtaining Capital: Methods of Long-Term Financing > Leasing

6. Lessees can often benefit from comprehensive maintenance programs offered by lessors while still paying a discounted premium due to the fact that the asset is being leased, not purchased. The costs of leases on the income statement depend on the duration and type of lease. EBITDA coverage ratio will improve if using operating leases. Leasing will influence depreciation expenses, maintenance expenses, other costs and ratios on income statement. Impact of Leasing on the Income Statement Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/obtaining-capital-methods-of-long-term-financing-14/leasing-109/impact-of- leasing-on-the-income-statement-463- 3805?campaign_content=book_192_section_109&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Leasing impact View on Boundless.com Obtaining Capital: Methods of Long-Term Financing > Leasing

7. Leasing is a process by which a firm can obtain the use of a certain fixed asset for which it must pay a series of contractual, periodic, tax deductible payments. Capital assets may fluctuate in value. Leasing shifts risks to the lessor, but if the property market has shown steady growth over time, a business that depends on leased property is sacrificing capital gains. Depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term, because a lessee is not usually obliged to renew a lease at the end of its term. Advantages of Leasing Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/obtaining-capital-methods-of-long-term-financing-14/leasing-109/advantages- of-leasing-464- 3806?campaign_content=book_192_section_109&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless View on Boundless.com Obtaining Capital: Methods of Long-Term Financing > Leasing

8. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

9. Key terms capital-intensive Capital intensity is the term for the amount of fixed or real capital present in relation to other factors of production, especially labor. EBITDA Coverage Times interest earned (TIE) or interest coverage ratio is a measure of a company's ability to honor its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest payable. present value Present value, also known as present discounted value, is the value on a given date of a payment or series of payments made at other times. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing

10. Leasing impact Leasing will improve the ratios of the income statement. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Operational Performance Improvement Delhi | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/castoncorporateadvisory/5038323659/sizes/m/in/photostream/ View on Boundless.comCC BY http://www.flickr.com/photos/castoncorporateadvisory/5038323659/sizes/m/in/photostream/View on Boundless.com Obtaining Capital: Methods of Long-Term Financing

11. Lease Leasing is a good way to lower the costs of a company. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "All sizes | Leased - 090520081773 | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/roland/2478229521/sizes/m/in/photostream/ View on Boundless.comCC BYhttp://www.flickr.com/photos/roland/2478229521/sizes/m/in/photostream/View on Boundless.com Obtaining Capital: Methods of Long-Term Financing

12. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing Which of the following is a characteristic of an operating lease? A) At the end of the lease, the company has the opportunity to purchase the asset at its market value. B) At the end of the lease, the lessee obtains ownership of the asset. C) The term of the lease is at least 75% of the asset's estimated useful life. D) The present value off the lease payments equals or exceeds 90% of the original cost of the asset.

13. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Obtaining Capital: Methods of Long-Term Financing Which of the following is a characteristic of an operating lease? A) At the end of the lease, the company has the opportunity to purchase the asset at its market value. B) At the end of the lease, the lessee obtains ownership of the asset. C) The term of the lease is at least 75% of the asset's estimated useful life. D) The present value off the lease payments equals or exceeds 90% of the original cost of the asset.

14. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing Which of the following is NOT an expense that can be decreased by a company through leasing? A) Depreciation expense. B) Interest expense. C) Maintenance expense. D) Acquisition costs.

15. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Obtaining Capital: Methods of Long-Term Financing Which of the following is NOT an expense that can be decreased by a company through leasing? A) Depreciation expense. B) Interest expense. C) Maintenance expense. D) Acquisition costs.

16. Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing Which of the following is an advantage a company can obtain by leasing its equipment? A) All of these answers. B) A business can grow more rapidly by leasing property instead of purchasing it. C) Leasing shifts the risk of capital asset value fluctuations from the lessee to the lessor. D) Leasing provides flexibility to companies that expect to grow or move in the short term.

17. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Obtaining Capital: Methods of Long-Term Financing Which of the following is an advantage a company can obtain by leasing its equipment? A) All of these answers. B) A business can grow more rapidly by leasing property instead of purchasing it. C) Leasing shifts the risk of capital asset value fluctuations from the lessee to the lessor. D) Leasing provides flexibility to companies that expect to grow or move in the short term.

18. Attribution Wikipedia. "Finance lease." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Finance_leaseCC BY-SA 3.0http://en.wikipedia.org/wiki/Finance_lease Wikipedia. "Operating lease." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Operating_leaseCC BY-SA 3.0http://en.wikipedia.org/wiki/Operating_lease Wikipedia. "Present value." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Present_valueCC BY-SA 3.0http://en.wikipedia.org/wiki/Present_value Wikipedia. "Leasing." CC BY-SA 3.0 http://en.wikipedia.org/wiki/LeasingCC BY-SA 3.0http://en.wikipedia.org/wiki/Leasing College Cram. "EBITDA Coverage | Finance: Ratios of Debt Management | College-Cram.com." CC BY http://www.college- cram.com/study/finance/ratios-of-debt-management/ebitda-coverage/CC BYhttp://www.college- cram.com/study/finance/ratios-of-debt-management/ebitda-coverage/ Wikipedia. "EBITDA Coverage." CC BY-SA 3.0 http://en.wikipedia.org/wiki/EBITDA%20CoverageCC BY-SA 3.0http://en.wikipedia.org/wiki/EBITDA%20Coverage Wikipedia. "Leasing." CC BY-SA 3.0 http://en.wikipedia.org/wiki/LeasingCC BY-SA 3.0http://en.wikipedia.org/wiki/Leasing Wikipedia. "capital-intensive." CC BY-SA 3.0 http://en.wikipedia.org/wiki/capital-intensiveCC BY-SA 3.0http://en.wikipedia.org/wiki/capital-intensive Free to share, print, make copies and changes. Get yours at www.boundless.com Obtaining Capital: Methods of Long-Term Financing