A strong credit rating will not be quite as critical for leasing as it would be for buying. This may be a big concern for start-ups and small businesses. · Tax deductions. Your monthly lease payment is tax deductible because it's a business expense. The business can usually deduct the full cost of lease rentals from taxable income · Freedom.
1. How do you calculate free cash flow to the firm? To equity? To the firm (unlevered free cash flow): EBITDA less taxes less capital expenditures less increase in net working capital. To equity (levered free cash flow): Same as firm FCF and then less interest and any required debt amortization.
Continental Carriers Continental Carriers, Inc. Advanced Financial Management Continental Carriers, Inc. (CCI) should take on the long-term debt to finance the acquisition of Midland Freight, Inc. for a few reasons. The company is heavy on assets, the debt ratio will only grow to 0.40 with the added $50M in debt. Also, the firm will benefit from an added $2M in a tax shield and be able to return $12.7M a year to its stockholders and investors, instead of $8.9M if equity is raised to finance the acquisition. Lastly, the stock price and earnings per share will increase to $3.87 in comparison to an equity-financed acquisition of $2.72 per share. CCI would be taking a somewhat high risk by issuing additional stock due to the uncertainty about the offering price.
List the advantages and disadvantages of leasing vs. buying. When is one more desirable than the other? Advantages Lower total cost of ownership (TCO): A lease lets the purchaser realize considerable savings compared to an outright purchase or scheduled purchase payments, because the purchaser pays only for the use of the equipment. Leasing also helps reduce the concerns and costs associated with equipment disposal. Reduced risk: At the end of the term, leasing gives the purchaser the option of simply returning the equipment, purchasing it outright or extending the contract.
Case Study Summarize the major lease accounting provisions under IFRS, focusing on the classification criteria (finance vs. operating leases). Under the IFRS accounting for leases depends on whether it is a financing or operating lease. The operating lease it required the lessor has the leased assets recorded on the balance sheet. While under the finance lease are accounted for as a financing transaction under the IFRS. The categorization of every lease will not depend on whether a company, bank or person to have legal ownership of the asset, it would depend only if the third party considerably has all the risk and rewards of the ownership.
The benefits of accrual basis accounting include equal distribution of expenses paid in advance and in arrears. Cash basis accounting is beneficial to smaller businesses especially when the company does not have to maintain an inventory, there are no customer accounts of returns, and when most of the sales are cash sales. This method of accounting is typically easier and cheaper to maintain. Although there are numerous benefits to both options the business must determine which method is best for them and that is usually based off the
Assuming 2% growth, the terminal value has a NPV of $4,843 million for 2009 and beyond. Note that without the terminal value for sales after 2009, the investment has a negative NPV of $296 million. Discount rate is calculated by; R = Rf + (Rm – Rf), so the US bonds rate (Risk-free rate, Rf) and the evaluated riskiness (), and Market riskiness (Rm) all affect the discount rates. Also note that the operating margins are computed before repayment of capital contributions from vendors or risk sharing partners (RSPs) and launch aid from the partner national governments. 2.
Old press – Originally purchased 3 years ago at an installed cost of $400,000, it is being depreciated under MACRS using a 5-year recovery period. The old press has a remaining economic life of 5 years. It can be sold today to net $420,000 before taxes; if it is retained, it can be sold to net $150,000 before taxes at the end of 5 years. Press A – This highly automated press can be purchased for $830,000 and will require $40,000 in installation costs. It will be depreciated under MACRS using a 5-year recovery period.
As the retailers incur virtually no costs by changing suppliers it is easy for them to play them against each other to get better terms. This negative effect is heightened by high supplier volume. As discount retailers account for a large percentage of their revenue, suppliers don’t have strong negotiating power. Power of Buyers – Low-Medium Purchases are not a large part of total income which