Swanand

just know this stuff and you'll be fine (copy paste from word so the formatting's not great):


EBITcapital lease = EBIToperating lease + Lease payment - (PV of lease pmts/# years of lease)
Interest expense w/ capital lease = Interest expense w/ operating lease + (r ?? PV of lease PMTs)

Assetscapital lease = Assetsoperating lease + PV of lease payments*
*Debt would also increase by this amount

- PV of lease PMTs is an asset because it?|s considered that you own the building/whatever being leased. Since you own it, you depreciate it.
- A certain portion of the lease payment will be interest, and the rest, principal. The interest portion reduces net income for the period, but the principal portion does not.
o Ex. Lease PMT $200, r = 5%, lease term = 10 years, PV = 1544.35
o In the first year of the lease, you would have:
?X Lease payment of $200
?X Interest expense of $77.22 (operating CF)
?X Principal Payment of $122.78 (investing CF)
?X End of year lease PV of 1421.57 (1544.35 ?V 122.78)
?X Depreciation expense of whatever; (management would choose depreciation method)
- Although assets are affected in the manner described above, Equity would not be (the counterbalance is Liabilities, not equity)



Edited 1 time(s). Last edit at Wednesday, March 16, 2011 at 12:49PM by magicskyfairy.