Operating Leases

Buy Lease

Firm U buys asset and uses asset; financing raised by debt and equity

Firm U leases asset from lessor; the lessor owns the asset

Firm U buys asset Lessor buy asset Firm U Leases asset

from manufacturer

from lessor

Creditors and equity Creditors and

shareholders supply shareholders supply

to Firm U financing to lessor

		Equity shareholders		Creditors
	Equity shareholders		Creditors

Years ago, a lease where the lessee received an operator along with the equipment was called an operating lease. Though the operating lease defies an exact definition today, this form for leasing has several important characteristics.

1. Operating leases are usually not fully amortized. This means that the payments required under the terms of the lease are not enough to recover the full cost of the asset for the lessor. This occurs because the term or life of the operating lease is usually less than the economic life of the asset. Thus, the lessor must expect to recover the costs of the asset by renewing the lease or by selling the asset for its residual value.

2. Operating leases usually require the lessor to maintain and insure the leased assets.

3. Perhaps the most interesting feature of an operating lease is the cancellation option. This option gives the lessee the right to cancel the lease contract before the expiration date. If the option to cancel is exercised, the lessee must return the equipment to the lessor. The value of a cancellation clause depends on whether future technological and/or economic conditions are likely to make the value of the asset to the lessee less than the value of the future lease payments under the lease.

Дата добавления: 2014-12-23