BAB21Leasing663

jatuholeh$4.000ketikasewadilembagakan.Becausedebtmustberepurchased,netliabilitiesrisebyonly$6,000
(5$10,0002$4,000)when$10,000ofassetsareplacedunderlease.5Debtdisplacementisahiddencostofleasing.
Ifafirmleases,itwillnotuseasmuchregulardebtasitwouldotherwise.Thebenefitsofdebtcapacitywillbelost
particularlythelowertaxesassociatedwithinterestexpense.
OPTIMALDEBTLEVELINTHEXOMOXEXAMPLETheprevioussectionshowedthatleasingdisplacesdebt.
Thoughthesectionillustratedapoint,itwasnotmeanttoshowtheprecisemethodforcalculatingdebt
displacement.Herewedescribetheprecisemethodforcalculatingthedifferenceinoptimaldebtlevelsbetween
purchaseandleaseintheXomoxexample.
FromthelastlineofTable21.3,weknowthesecashflowsfromthepurchasealternativerelativetothecash
flowsfromtheleasealternative:6

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Year0Year1Year2Year3Year4Year5

Netcashflowsfrom
purchasealternativerelativetoleasealternative$10,000$2,330$2,330$2,330$2,330$2,330

AnincreaseintheoptimaldebtlevelatYear0occursbecausethefirmlearnsatthattimeofguaranteedcash
flowsbeginningatYear1.Ourdetourintodiscountinganddebtcapacitytoldustocalculatethisincreaseddebt
levelbydiscountingthefuturerisklesscashinflowsattheaftertaxinterestrate.7Thus,theadditionaldebtlevelof
thepurchasealternativerelativetotheleasealternativeis:
$10,087.68=
_________$2,3301.05
_________$2,330(1.05)2
_________$2,330(1.05)3
_________$2,330(1.05)4
_________$2,330(1.05)5
Thatis,whatevertheoptimalamountofdebtwouldbeundertheleasealternative,theoptimalamountofdebtwould
be$10,087.68moreunderthepurchasealternative.
Thisresultcanbestatedinanotherway.Imaginetherearetwoidenticalfirmsexceptthatonefirmpurchases
theboringmachineandtheotherleasesit.FromTable21.3,weknowthatthepurchasingfirmgenerates$2,330
morecashflowaftertaxesineachofthefiveyearsthandoestheleasingfirm.Furtherimaginethatthesamebank
lendsmoneytobothfirms.Thebankshouldlendthepurchasingfirmmoremoneybecauseithasagreatercashflow
eachperiod.Howmuchextramoneyshouldthebanklendthepurchasingfirmsothattheincrementalloancanbe
paidoffbytheextracashflowsof$2,330peryear?Theanswerisexactly$10,087.68theincreaseintheoptimal
debtlevelwecalculatedearlier.
Toseethis,letusworkthroughtheexampleyearbyyear.Becausethepurchasingfirmborrows$10,087.68
moreatYear0thandoestheleasingfirm,thepurchasingfirm
5Growingfirmsintherealworldwillnotgenerallyrepurchasedebtwheninstitutingalease.Rather,theywillissuelessdebtin
thefuturethantheywouldhavewithoutthelease.6ThelastlineofTable21.3presentsthecashflowsfromtheleasealternative
relativetothepurchasealternative.Aspointedoutearlier,ourcashflowsarenowreversedbecausewearenowpresentingthe
cashflowsfromthepurchasealternativerelativetotheleasealternative.7Thoughourdetourconsideredonlyrisklesscashflows,
thecashflowsinaleasingexamplearenotnecessarilyriskless.Asweexplainedearlier,wethereforeadopttherealworld
conventionofdiscountingattheaftertaxinterestrateonsecureddebtissuedbythelessee.

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664PARTVLongTermFinancing
Table21.6CalculationofIncreaseinOptimalDebtLevelifXomoxPurchasesinsteadofLeases
Assumethattherearetwootherwiseidenticalfirms:Oneleasesandtheotherpurchases.Thepurchasingfirmcanborrow
$10,087.68morethantheleasingfirm.Theextracashfloweachyearof$2,330frompurchasinginsteadofleasingcanbeusedto
payofftheloaninfiveyears.*$8,262.07=$10,087.68$1,825.61.$1,825.61=$2,330$504.39.

willpayinterestof$764.22(5$10,087.683.0757575)atYear1ontheadditionaldebt.Theinterestallowsthefirm
toreduceitstaxesby$259.83(5$764.223.34),leavinganaftertaxoutflowof$504.39(5$764.222$259.83)at
Year1.
WeknowfromTable21.3thatthepurchasingfirmgenerates$2,330morecashatYear1thandoestheleasing
firm.Becausethepurchasingfirmhastheextra$2,330cominginatYear1butmustpayinterestonitsloan,how
muchoftheloancanthefirmrepayatYear1andstillhavethesamecashflowastheleasingfirm?Thepurchasing
firmcanrepay$1,825.61(5$2,3302$504.39)oftheloanatYear1andstillhavethesamenetcashflowthatthe
leasingfirmhas.Aftertherepayment,thepurchasingfirmwillhavearemainingbalanceof$8,262.07(5$10,087.68
2$1,825.61)atYear1.Foreachofthefiveyears,thissequenceofcashflowsisdisplayedinTable21.6.The
outstandingbalancegoestozerooverthefiveyears.Thus,theannualcashflowof$2,330,whichrepresentsthe
extracashfrompurchasinginsteadofleasing,fullyamortizestheloanof$10,087.68.
Ouranalysisofdebt capacityhastwopurposes.First,wewanttoshowtheadditionaldebtcapacityfrom
purchasing. We just completed this task. Second, we want to determine whether the lease is preferred to the
purchase.Thisdecisionrulefollowseasilyfromourdiscussion.Byleasingtheequipmentandhaving$10,087.68
lessdebtthanunderthepurchasealternative,thefirmhasexactlythesamecashflowinYears1to5thatitwould
havethroughaleveredpurchase.Thus,wecanignorecashflowsbeginninginYear1whencomparingthelease
alternativetothepurchasewithdebtalternative.However,thecashflowsdifferbetweenthealternativesatYear0:
1.ThepurchasecostatYear0of$10,000isavoidedbyleasing.Thisshouldbeviewed
asacashinflowundertheleasingalternative.2.Thefirmborrows$10,087.68lessatYear0underthelease
alternativethanitcanunderthepurchasealternative.Thisshouldbeviewedasacashoutflowundertheleasing
alternative.
Because the firm borrows $10,087.68lessbyleasingbut saves only$10,000ontheequipment,the lease
alternativerequiresanextracashoutflowatYear0relativetothepurchasealternativeof $87.68(5$10,0002
$10,087.68).Becausecashflowsinlateryearsfromleasingareidenticaltothosefrompurchasingwithdebt,the
firmshouldpurchase.
Year0Year1Year2Year3Year4Year5

Outstandingbalanceofloan$10,087.68$8,262.07*$6,345.17$4,332.42$2,219.05$0Interest764.22625.91480.69328.22
168.11Taxdeductiononinterest259.83212.81163.44111.5957.16Aftertaxinterestexpense$504.39$413.10$317.25$
216.63$110.95Extracashthatpurchasingfirmgeneratesoverleasingfirm(fromTable21.3)$2,330.00$2,330.00$2,330.00
$2,330.00$2,330.00Repaymentofloan$1,825.61$1,916.90$2,012.75$2,113.37$2,219.05

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BAB21Leasing675
faktoruangadalahdenganmemperbanyaktingkatbulanandengannilaibukurataratauntukmendapatkanpembayaranbulanan.
FaktorsewadealermengutipAndaadalah0,00215.
Pembayaran sewa bulanan terdiri dari tiga bagian: Biaya Penyusutan, biaya keuangan, dan pajak penjualan. Biaya
penyusutanadalahbiayayangdikapitalisasinetdikuranginilaisisadibagidenganmasasewa.Biayakeuanganadalahbiaya
kapitalisasibersihditambahkalisisafaktoruang,danpajakpenjualanbulananhanyalahkalipembayaransewabulanantarif
pajak. Apa April merupakan dealer mengutip Anda? Apa sewa pembayaran bulanan Anda untuk sewa 36bulan jika pajak
penjualanadalah7persen?
CHALLENGE
17.Leasevs.BorrowReturntothecaseofthediagnosticscannerdiscussedinProblems1(Questions
1718)
through6.Supposetheentire$5,800,000purchasepriceofthescannerisborrowed.Therateontheloanis8percent,andthe
loanwillberepaidinequalinstallments.Createaleaseversusbuyanalysisthatexplicitlyincorporatestheloanpayments.Show
thattheNPVofleasinginsteadofbuyingisnotchangedfromwhatitwasinProblem1.Whyisthisso?18.LeaseorBuyHigh
electricitycostshavemadeFarmerCorporation'schickenpluckingmachineeconomicallyworthless.Onlytwomachinesare
availabletoreplaceit.TheInternationalPluckingMachine(IPM)modelisavailableonlyonaleasebasis.Theleasepayments
willbe$80,000forfiveyears,dueatthebeginningofeachyear.ThismachinewillsaveFarmer$29,000peryearthrough
reductionsinelectricitycosts.Asanalternative,FarmercanpurchaseamoreenergyefficientmachinefromBasicMachine
Corporation(BMC)for$365,000.Thismachinewillsave$32,000peryearinelectricitycosts.Alocalbankhasofferedto
financethemachinewitha$365,000loan.Theinterestrateontheloanwillbe10percentontheremainingbalanceandwill
requirefiveannualprincipalpaymentsof$73,000.Farmerhasatargetdebttoassetratioof67percent.Farmerisinthe34
percenttaxbracket.Afterfiveyears,bothmachineswillbeworthless.Themachineswillbedepreciatedonastraightlinebasis.
Sebuah.ShouldFarmerleasetheIPMmachineorpurchasethemoreefficientBMCmachine?b.Doesyouranswerdependonthe
formoffinancingfordirectpurchase?c.Howmuchdebtisdisplacedbythislease?

MiniCaseTHEDECISIONTOLEASEORBUYATWARF
COMPUTERS
WarfComputershasdecidedtoproceedwiththemanufactureanddistributionofthevirtualkeyboard(VK)thecompanyhas
developed.Toundertakethisventure,thecompanyneedstoobtainequipmentfortheproductionofthemicrophoneforthe
keyboard.Becauseoftherequiredsensitivityofthemicrophoneanditssmallsize,thecompanyneedsspecializedequipment
forproduction.
NickWarf,thecompanypresident,hasfoundavendorfortheequipment.ClaptonAcousticalEquipmenthasofferedtosell
WarfComputersthenecessaryequipmentatapriceof$3.6million.Becauseoftherapiddevelopmentofnewtechnology,the
equipmentfallsinthethreeyearMACRSdepreciationclass.Attheendoffouryears,themarketvalueoftheequipmentis
expectedtobe$440,000.
Alternatively, the companycan leasethe equipmentfrom HendrixLeasing. The leasecon tractcalls forfour annual
paymentsof$935,000,dueatthebeginningoftheyear.Additionally,WarfComputersmustmakeasecuritydepositof$210,000
thatwillbereturnedwhentheleaseexpires.WarfComputerscanissuebondswithayieldof11percent,andthecompanyhasa
marginaltaxrateof35percent.
1.ShouldWarfbuyorleasetheequipment?2.NickmentionstoJamesHendrix,thepresidentofHendrixLeasing,thatalthough
thecompanywillneedtheequipmentforfouryears,hewouldlikealeasecontractfortwo
Appendix21A
676PARTVLongTermFinancing
yearsinstead.Attheendofthetwoyears,theleasecouldberenewed.Nickwouldalsoliketoeliminatethesecuritydeposit,but
hewouldbewillingtoincreasetheleasepaymentsto$1,650,000foreachofthetwoyears.Whentheleaseisrenewedintwo
years,Hendrixwouldconsidertheincreasedleasepaymentsinthefirsttwoyearswhencalculatingthetermsoftherenewal.The
equipmentisexpectedtohaveamarketvalueof$1.44millionintwoyears.WhatistheNALoftheleasecontractunderthese
terms?WhymightNickpreferthislease?Whatarethepotentialethicalissuesconcerningthenewleaseterms?3.Intheleasing
discussion,JamesinformsNickthatthecontractcouldincludeapurchaseoptionfortheequipmentattheendofthelease.
HendrixLeasingoffersthreepurchaseoptions:
a.Anoptiontopurchasetheequipmentatthefairmarketvalue.b.Anoptiontopurchasetheequipmentatafixedprice.The
pricewillbenegotiated
beforetheleaseissigned.c.Anoptiontopurchasetheequipmentatapriceof$200,000.
Howwouldtheinclusionofapurchaseoptionaffectthevalueofthelease?4.JamesalsoinformsNickthatthelease
contractcanincludeacancellationoption.ThecancellationoptionwouldallowWarfComputerstocanceltheleaseonany
anniversarydateofthecontract.Inordertocancelthelease,WarfComputerswouldberequiredtogive30days'noticepriorto
theanniversarydate.Howwouldtheinclusionofacancellationoptionaffectthevalueofthelease?

APVApproachtoLeasing
Toaccesstheappendixforthischapter,pleaselogontoConnectFinance.

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