Académique Documents
Professionnel Documents
Culture Documents
$
$
$
34.00%
9.50%
715,000
160,003
11.2729%
5
$469,273
$469,273
6.27%
6.27%
(0)
$
$186,212
9.50%
1
715,000
186,212
67,925
118,287
$596,713
2
$596,713
186,212
56,688
129,524
$467,189
$44,831
$37,414
34.00%
$142,600
$715,000
n Table
3
$467,189
186,212
44,383
141,829
$325,360
4
$325,360
186,212
30,909
155,303
$170,057
5
$170,057
186,212
16,155
170,057
$0
$29,293
$20,400
$10,663
Exhibit 1
AvantJet Statement of Income
($000)
2001
2000
1999
576,327 $
9,985
575,477 $
6,976
432,522
9,677
Gross income
586,312
582,453
442,199
425,076
43,624
13,773
84,062
423,443
36,215
12,873
87,259
325,016
35,632
9,064
27,002
566,535
559,790
396,714
19,777
9,690
22,662
11,105
45,485
22,288
10,087 $
11,557 $
23,197
Sales
Other income
Total expenses
Income before taxes
Taxes
Net income
Source: Company records.
Exhibit 2
AvantJet Balance Sheet
($000)
2001
2000
Assets
Current assets:
Cash and temporary investments
Accounts receivable
Inventories
Prepaid expenses
19,918 $
37,791
310,180
13,928
27,263
37,307
323,101
13,362
381,817
401,033
2,245
30,654
26,932
1,683
1,668
63,182
12,634
50,548
2,245
30,229
21,244
1,520
885
56,123
8,267
47,856
640,369
648,339
1,072,734 $
1,097,228
592 $
42,355
4,750
563
38,760
5,764
39,627
146,964
43,855
160,946
234,288
249,888
646,633
42,661
689,294
671,225
41,498
712,723
Common stock
Capital in excess of par value
Retained earnings
Less common stock in treasury
Total stockholders' equity
Total liabilities and stockholders' equity
Source: Company records.
3,385
74,081
72,017
(331)
3,027
69,770
62,156
(336)
149,152
134,617
1,072,734 $
1,097,228
Exhibit 3
Terms Under Hypothetical Buy-and-Borrow
and Leasing Strategies
Loan (Buy-and-Borrow)
5-year term loan
Payment in arrears
Equipment cost
Cash down payment
Loan amount
Lease
5-year net lease
Leasing option #1
Leasing option #2
Leasing option #3
Leasing option #4
Both Methods
Guaranteed residual value:
(required by Primus Equipment Finance Division)
Investment tax credit
Depreciation
y-and-Borrow
ies
$715,000
$0
$715,000
Annual payments
(in advance)
$155,040
$160,003
$162,350
$164,760
11.2729%
0%
5-year MACRS
Exhibit 4
Sample Calculation of the Present Value of Cash Outflows1
Tax rate:
Pretax interest rate:
Year
0
1
2
3
4
5
Sum
NPV
34.00%
9.50%
Interest
Five-Year
Payment
after
Principal
MACRS3
Depr.
Depr.
before
Tax2
Payment2
Rate
Tax
$44,831
$37,414
$29,293
$20,400
$10,663
$142,600
$118,287
$129,524
$141,829
$155,303
$170,057
$715,000
20.00%
32.00%
19.20%
11.52%
11.52%
94.24%
$143,000
$228,800
$137,280
$82,368
$82,368
$673,816
This table illustrates the calculation of net present value (NPV) for the two methods of equipment financing: the loan fina
borrow) and the lease financing. Because these cash flows are net outflows or expenses, the alternative with the lower net
the customer.
1
The residual cash flow equals the sale proceeds less the tax expense on the gain or loss from the sale. The tax expense equ
between sale proceeds and net book value of the asset (see separate calculation below).
4
Loan cash flows are the sum of after-tax interest payments, principal payments, depreciation tax shield (shown as a negativ
value captured from sale of the residual asset (also negative). Loan-financing cash flows occur in arrears.
5
Lease cash flows equal the assumed lease payment less the tax shield. Lease payments are made in advance.
xhibit 4
Residual
Depr.
Tax
Cash Flow
after
Savings
Tax4
($48,620)
($77,792)
($46,675)
($28,005)
($28,005)
($229,097)
($67,199)
($67,199)
Loan
Cash
Outflow5
$0
$114,498
$89,146
$124,447
$147,698
$85,515
$561,303
$469,273
Lease
Cash
Outflow6
$105,602
$105,602
$105,602
$105,602
$105,602
$0
$528,010
$469,273
thods of equipment financing: the loan financing alternative (also called buy-andxpenses, the alternative with the lower net present value will be more attractive to
n or loss from the sale. The tax expense equals the tax rate times the difference
below).
depreciation tax shield (shown as a negative value because it reduces expenses), and
ash flows occur in arrears.
$80,601
$41,184
$39,417
$13,402
$715,000
$673,816
$41,184
Exhibit 5
Sample Calculation of the Internal Rate of Return1
for Lease Financing
Lease
Year
0
1
2
3
4
5
Sum
IRR
Lease
Forgone Tax
Forgone
Initial
Payment
Payment
Savings
Residual Value
Purchase
Less
after
Associated with
after
Price
Incremental
Tax2
Depreciation2
Tax2
Saved
Cash Flow
($105,602)
($105,602)
($105,602)
($105,602)
($105,602)
$0
($528,010)
$715,000
($48,620)
($77,792)
($46,675)
($28,005)
($28,005)
($229,097)
($67,199)
($67,199)
$715,000
$609,398
($154,222)
($183,394)
($152,277)
($133,607)
($95,204)
($109,307)
6.27%
This table illustrates the calculation of the internal rate of return (IRR) associated with lease financing.
The IRR is the effective after-tax cost of the lease financing and is useful for comparison with the cost of
alternative forms of financing. Because this is a calculation based on costs to the customer, a lower IRR
will be more attractive to the customer.
1
Exhibit 6
Summary Table of the Net Present Value and Internal Rate of Return
For Four Tax and Cost-of-Capital Scenarios1
Scenario
Effective tax rate
Pretax cost of debt
After-tax cost of debt
A
34.0%
9.5%
6.27%
B
34.0%
13.0%
8.58%
$469,273
6.27%
$484,546
8.58%
Leasing option #1
NPV of leasing option #1
IRR of lease
Lease advantage over borrowing
$155,040
$454,717
5.32%
$14,556
$155,040
Leasing option #2
NPV of leasing option #2
IRR of lease
Lease advantage over borrowing
$160,003
$469,273
6.27%
$0
$160,003
Leasing option #3
NPV of leasing option #3
IRR of lease
Lease advantage over borrowing
$162,350
$476,156
6.72%
($6,883)
$162,350
Leasing option #4
NPV of leasing option #4
IRR of lease
Lease advantage over borrowing
$164,760
$483,225
7.19%
($13,952)
$164,760
Faulhaber Gmbh
NPV of loan
NPV of lease
IRR of lease
Lease advantage over borrowing
Honshu Heavy Industries
NPV of loan
NPV of lease
IRR of lease
Lease advantage over borrowing
al Scenarios1
C
0.0%
9.5%
9.50%
D
0.0%
13.0%
13.00%
$663,800
9.50%
$671,253
13.00%
$155,040
$155,040
$160,003
$160,003
$162,350
$162,350
$164,760
$164,760