This essay What are some of the various lease options? has a total of 740 words and 5 pages.
What are some of the various lease options?
"...the FASB outlined specific criteria to help classify leases as either
capital or operating leases" (Schroeder, Clark, & Cathey, 2005, p. 419).
Capital lease is displayed as long term obligation in balance sheet. The
installment payment is segregated under two areas, the first is interest,
and other is adjustments for principal amount. For this break up, an
amortization table is made. The table assists the organization in deciding
the sum of interest expenditures to be charged to income statement. Lessee
has the legal right to charge wear and tear on the leased property.
Operating lease is a off balance sheet liability since it is not displayed
as liability in the balance sheet, instead it is displayed below the
headings of commitments as foot note. In operating lease lessee can display
the complete installment amount below the heading of expenditures and can
demand tax benefit. However the lesser must display whole installment below
the heading of income, for that reason he is eligible to charge wear and
tear on the rented property.
When would you use one option over the others? What could be the financial
impact of this decision?
There are a few benefits as well as drawbacks pertaining to leases. An
organization can lock in the cost of a lease, that can be either bad or
good. In case the present cost to lease enhances, a long-term lease
contract can save money. But, in case market conditions drop in a way that
the fixed cost of a lease retreats, the organization is still accountable
for the initial amount set forth in the leasing contract.
Under which circumstances would you lease versus purchase? What are the
criteria that you would use to make this decision? What is the financial
impact of this decision?
Under which circumstances would you lease versus purchase?
The judgment to rent or buy significantly depends upon requirement as well
as financial position. For instance, my organization may rent a piece of
property or equipment in case the requirement for such will be short-term.
I have leased a business place for recent years while I was buying as well
as building my long term office. Additionally, while finishing a building
job, in case an additional machine is required, I may lease the machine for
much lower than having to buy. I may just require a particular machine for
one task, therefore a purchase is much too costly. Currently, if I see
where I have required to lease a particular machine many times, I will roll
the lease into a purchase.
What are the criteria that you would use to make this decision?
I would examine the requirement as well as financial position. In case
equipment/property, and so on. is required short-term, a lease is much
better. But, as I mentioned earlier on, in case I have a long-term
requirement, a purchase may be right. Previously, I leased a machine many
times over many years. After examining the lease expenses, I discovered
that I could have bought the equipment outright for very little more and
possessed the equipment.
What is the financial impact of this decision?
Once again, leasing for short-term requirement can reduce the financial
effect instead of buying. But, in case long-term, a purchase may be much
better. Some organizations select to lease irrespective of period of
requirement since the lesser may be chargeable for maintenance or repair;
this may also impact or counterbalance the financial effect.
What are the components of the capital structure? What are the differences
of these components? How do you determine the optimal mix of the components
of the capital structure?
What are the components of the capital structure?
"The financial (or capital) structure is the proportion of debt and equity
capital and the particular forms of debt (e.g., long versus short) and
equity (e.g., common versus preferred) chosen to finance the assets of the
firm. Management maximizes the firm's value by minimizing the firm's cost
of financing its assets." (Williams, Haka, & Bettner, 2005, p. 630).
What are the differences of these components? How do you determine the
optimal mix of the components of the capital structure?
Capital structure is a combination of a firm's long-term debt, short-term
debt, common equity, as well as preferred equity. The capital structure is
how a strong funds its overall functions and progress by utilizing
different options for money. Management should take into account the
influence of modifications in the structure of its fiscal reports since
lenders regularly use financial ratios in debt contracts with
organizations. Optimal capital structure is the combination of equity and
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