...looking at new equipment has options; leasing or purchasing. There are many equations a company can use to help determine which is best fit for its business. Exploring all options is the best place to begin when looking at an acquisition. Purchasing A company decides it will purchase new equipment must look at different variables making this decision. The company will look at things like its tax bracket and how much it will cost to make a purchase. The company will also look at the value of the equipment once the term of the loan is completed. The salvage return if the company decides it would like to sell the equipment after its use. At this time, when a business makes a purchase, they will list it on a balance sheet; unlike a lease, which does not at this time (Mayo, 2012). If a company, purchases an asset there are tax implications if the asset is sold at more than book value. Leasing A company decides to lease equipment; it will look at many of the same things when determining if the lease is the best option. Leasing allows the company to avoid things like maintenance if the contract so states. There is also the risk of early termination fees if the business no longer has a need for the equipment before the contract has expired. A company can benefit from potential tax advantage based on lease or rental expense, which is tax deductible. The Financial Accounting Standards Board has set four conditions and if met when leasing, a company must then report on its balance...
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...Leasing vs. Purchasing Leasing vs. Purchasing Purchasing or leasing a large asset is vital to the company’s financial bottom line. Businesses need to make ideal decisions based on what will help the growth of the company. Having a set financial plan in place that reviews not only the benefits but, also the losses will help determine if purchasing or leasing would be most beneficial for a company. Many factors will be addressed including taxes and time and money. Lease Decision Factors that should be consider before making a lease decision are the same factors that need to be evaluated to make a purchase decision. A plan should be put together addressing the following factors. What is the timeframe needed is it short or unknown, how soon would the item or be needed. I the space, item adequate, or will there be the cost associated with making the space or item adequate. Flexibility for growth and possible costs associated with expanding space or equipment in present location. Physical space location considerations, ability to grow, or possible relocation costs and travel time. Services needed for space or item or services close enough, cost for services that need to be implemented, networking, electrical, parking and security. Understanding cost such as “design fees, construction, moving expenses, and furnishing in addition to operating expenses”. (University of Missouri System, 2013) Funding type & availability needs to be determined with the company’s business officer...
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...3-2 Week 2 Lecture: Analyzing Financing Activities Financial Statement Analysis Overheads from K.R. Subramanyam textbook resources as amended by F.Hui for FIN324 2016. CHAPTER Liabilities (including employee benefits), Equity And off balance sheet transactions Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 3-3 Overview of Chapter Companies operations are financed by various sources: • Liabilities • Capital (Stockholders’ Equity) • Off balance sheet transactions 3-4 Companies’ Financing Sources Liabilities Capital (Stockholders’ Equity) Off balance sheet transactions 3-5 Liabilities Liabilities Alternative Classification Important Features in Analyzing Liabilities • Terms of indebtedness (such as maturity, interest rate, payment pattern, and amount). • Restrictions on deploying resources and pursuing business activities. • Ability and flexibility in pursuing further financing. • Obligations for working capital, debt to equity, and other financial figures. • Dilutive conversion features that liabilities are subject to. • Prohibitions on disbursements such as dividends. Obligations that arise from operating activities--examples are accounts payable, unearned revenue, advance payments, taxes payable, postretirement liabilities, and other accruals of operating expenses Operating Liabilities Obligations...
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...Standards for Leases Who is likely to be affected? Businesses which are lessees or lessors of assets and account for lease transactions using a leasing accounting standard which changes on or after 1 January 2011. General description of the measure Current accounting standards are International Accounting Standards (IAS) and UK Generally Accepted Accounting Practice (UK GAAP). Changes to the IAS lease accounting standard are expected during 2011, and changes to UK GAAP might follow in 2013. Legislation will be introduced in Finance Bill 2011 to ensure continuity of tax treatment for lease transactions for businesses which begin to account for the transactions under new accounting standards, expected to be introduced from 2011. The measure will require tax profits and losses to continue to be calculated as if the changes to lease accounting standards had not taken place. Policy objective The measure will ensure that existing tax rules that rely on accounting classifications of leases as operating or finance leases, and the accounting treatment of lease transactions, continue to operate in the way they currently do. The objectives are to: • • ensure that lessors and lessees will be neither disadvantaged nor advantaged by the proposed accounting changes; remove uncertainty for businesses about the future tax treatment of leasing contracts, arising from uncertainty about future lease accounting standards and their interaction with current tax rules; and protect the Exchequer...
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...Leasing vs. Buying a Vehicle The great debate to lease or buy a car? Which one of the two options is the smarter or he better choice? The answer to this question is both and neither are the best options. Confusing one may think so, however, the best way to get to the answer is to ask yourself what is important to you. Every person is different with different values and priorities that determine for them whether leasing or buying is the answer. There are people who desire to drive a new vehicle every few years with little or no maintenance costs. Some people have a strong desire to own the vehicle, as opposed to lower upfront costs with no ownership. One of the two of the biggest temptations for many people to lease verses buying are that the monthly costs to lease are cheaper than the monthly payments to buy a car. The other is that they are able to have a new car every 2-3 years, as opposed to the people who purchase. People who purchase generally hold on to the car for an additional 2 years after the last car payment. Let’s review the pros and cons of leasing. The advantages of leasing are it offers lower monthly payment and the ability to drive a new car with all the new bells and whistles every 2-3 years (ehow). There is a tax benefit of paying lower taxes since the individual is paying the taxes on the monthly payments verses the full value of the car. From the two examples so far it appears that leasing is a great situation, and everyone should lease; once...
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...Many businesses may already know the benefits of leasing their equipment, including significant tax benefits and conserving their cash. Businesses also need to consider the benefits that can derive from leasing other “stuff”. Here is a list of other “stuff” that a business can lease and the benefits that can be derived from leasing. Other “stuff” that a business can lease Lease or license a software Businesses can lease a software license for a given period. The client uses the software product that requires a license. However, the client holds the license for the lease period even after the product has been quit. If the client does not use the software again, the license is automatically revoked at the end of the lease period. Also, lease licenses can be bundled with other equipment purchases such as computer systems that require a licensed software and is sold separately from the main equipment. For all customers, you have the power. The software leasing makes too much sense to ignore. Also it is easy, and you have the technology! If you have more questions or comments feel free to contact us. Services Businesses can lease services from service providers for a given lease period. Normally, services are offered as a bundled item by vendors and manufacturer so as to make “one payment” packages for the equipment and services bundle. The equipment and service bundle are mainly offered to produce hell-or-high-water protection, offer prepaid maintenance...
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...therapy. This facility would be in support of the orthopedic services and located adjacent to or on the hospital campus. The expansion of services would have the following five-year targeted outcomes: 1) Quality and Safety •CMS orthopedic indicator set >90th percentile •Pre/post procedure class attendance >75% 2) Service Excellence •Likelihood of recommending >90th percentile •Physician satisfaction >90th percentile 3)Staff Achievement •Orthopedic nursing staff certification >75% •Orthopedic staff retention rate >90% 4)Growth and Profitability •Surgical cases—2100 •Physical therapy visits—6,500 •Margin—$2,171,500 It has been asked to review the strengths and weaknesses for building, buying, and leasing a physical therapy center. A1. Advantages Just like any other business, Trinity Community Hospital will work towards their expansion goals with a business plan and strategic goals in mind. In addition to strategic plans, management must consider economic trends. Concerns of decreasing credit...
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...Amt Task1 Service Line Development Running head: SERVICE LINE DEVELOPMENT Business Summary for Trinity Community Hospital Orthopedic Service Line Development Background Information Trinity Community Hospital, a 150-bed hospital with 20 operating rooms and an emergency department on a 25-acre campus, is a community-owned hospital located in a growing community in the southeastern U.S. with a population of 400,000 people in the city and 900,000 in the county. The community is made up of high tech business and industry as well as retirees. It is home to several colleges and a university. The hospital is 25 years old and the campus is comprised of the main hospital with four medical office buildings (MOBs). There are two primary competitors within a 10-mile radius of Trinity which are both private, not-for-profit medical centers. Also, there is a nationally recognized medical center approximately 60 miles from Trinity however this facility is not considered a competitive threat. Numerous specialties with a broad range of medical/surgical services are represented on the hospital staff and all physicians are board certificated. Trinity Community Hospital also boosts of its full Joint Commission accreditation, newly remodeled, modern patient rooms, award-winning dietary department, expert nursing staff, and the highest patient satisfaction scores in the region. Trinity Community Hospital is governed by a six-member Board of Trustees. The board members come from diverse backgrounds but...
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...than buy them for a variety of reasons including the tax benefits that are greater to the lessor than the lessees and leases offer more flexibility in terms of adjusting to changes in technology and capacity needs. Lease payments create the same kind of obligation that interest payments on debt create, and have to be viewed in a similar light. If a firm is allowed to lease a significant portion of its assets and keep it off its financial statements, an examination of the statements will give a very misleading view of the company's financial strength. Consequently, accounting rules have been devised to force firms to reveal the extent of their lease obligations on their books. There are two ways of accounting for leases. In an operating lease, the lessor (or owner) transfers only the right to use the property to the lessee. At the end of the lease period, the lessee returns the property to the lessor. Since the lessee does not assume the risk of ownership, the lease expense is treated as an operating expense in the income statement and the lease does not affect the balance sheet. In an operating lease, a company pays a periodic fee for the use of some benefit. The benefit can be tangible, such as office space, or intangible, such as a patent. The company acquiring the lease takes no ownership over this benefit, only the ability to use it. As a result, the accounting rules for operating leases differ from ownership. The leasing costs are directly expensed as incurred. Given reasonable...
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...Bangladesh is a developing country, but the national calamity and political unrest sluggish the industrial growth as well as economic growth of the country. Inspite of all these hindrance the growth of leasing companies is a significant indication of our bright prospects. The traditional sources of funds of our country in the financial market are – the Commercial Banks, DFIs and the stock exchange. But these sources are not enough to effectively meet the growing demand of capital investments for industrialization of the country. And the backdrop of such scenario, leasing companies came forward in the 80s to serving as an alternative source of financing. Leasing is now a growing industry in many developing countries as well as Bangladesh. In spite of sluggish economic activities the growth of the leasing industry is significant. Lease is a contract between the owner and the user of assets for a certain time period during which the second party uses an asset in exchange of making periodic rental payments to the first party without purchasing it. Under lease financing, the lessee regularly pays the fixed lease rent over a period of time at the beginning or at the end of a month, 3 months, 6 months or a year. At the end of the lease contract the asset reverts to the real owner. Leasing is an important new method of financing. Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse lease financial need of various sectors of an economy and thus contribute...
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...Lease Vs Purchase Paper Team B FIN 370 March 12, 2015 Davidson Jansen Lease Vs Purchase Paper Leasing versus purchasing advantages and disadvantages When equipment is leased one of the main advantages is that the equipment is kept up –to-date. For example, if a company lease a car for two years, once the contract is done, the company can lease or buy a newer car with newer technology. Another big advantages for leasing equipment in the business world is the predictability of monthly expenses. A lease comes with a pre-determined monthly line item which is most helpful during the monthly budgeting. One of the biggest disadvantages of leasing is the fact that at the end a company will end up paying more for the product or equipment (Alexander, 2015). When a company purchase equipment the biggest advantage is the availability to deduct the full cost of the equipment on the company’s taxes. Another big advantage is that freedom of maintenance choice. When an equipment is leased the leasing company has a say on how the equipment must be maintain. The biggest disadvantage of purchasing equipment is once the equipment is outdated you are stuck with it (Alexander, 2015). Compare Factors Involved in Leasing and Purchasing Equipment According to Principals and Practices of Public Procurement (2012), it is important to conduct a cost/benefit analysis when determining whether to lease or purchase equipment. Factors to consider when conducing this analysis includes determining...
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...Response to Client Request ACC 541 24, December 2012 Memorandum To: Supervisor From: Sarah Dixon Re: Leases and lease structure issues It has come to my attention of our client’s concern regarding the uncertain relationship with a customer who may potentially offer the company a significant growth benefit. The following memo will address the client’s concern and recommend a solution to the problem, giving a summary of several different types of leases. One of the most important issues here lies with understanding that the client’s main concern is trying to make as much profit as he possibly can for his regional trucking company. The opportunity offered to this client could potentially be very profitable if handled in the correct manner. The client has the option to either purchase twenty more trailers to accommodate this customer or use an alternative means of acquiring these assets known as leasing (Schroeder, 2011). I will explain leases and lease structure issues of several different types of leases including direct financing leases, sales type leases, and operating leases which could greatly benefit this client. A lease is a contractual agreement between the lessee, or the user, to pay the lessor, or the owner, for the use of an asset or services. Leases are classified under the Financial Accounting Standards Board (FASB) under the number 840. The lessee is the receiver of the services or assets under the lease agreement, and the lessor is the owner...
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...I. Economic Benefits Leasing The first and most obvious benefit of leasing the space is the significantly lower capital expenditure at period zero. The capital expenditure for the leasing project is more than half of that of the building a business project. This means that there are less upfront payments as well as less potential debt. Additionally, the guaranteed lease payments indicate a consistent cash flow for the hotel regardless of the success of the pub venture. In comparison, depreciation is also lower from a leasing standpoint due to the lower initial capital expenditure. As the main responsibility of running the business is outsourced to the leasing company, this initiative also incurs less annual costs in terms of raw materials needed to run the business in addition to less operating expenses for the hotel. This situation proves to be a very safe investment for the hotel, as they are taking on minimal costs and have a guaranteed income of capital through the lease payments. Building This initiative proves to be more risky than leasing; nonetheless offers a higher return. The initial capital expenditure is double that of leasing the space, however it does give the hotel full earnings of all future revenue. While incurring additional raw material and operating costs throughout the year, this initiative does prove to be more expensive with a higher degree of labor required. That being said, if run properly the venture is projected to turn a much higher profit...
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...a long-term lease contract where the lessee bears all operating, repairing and maintenance costs, and makes periodic rental payments to the lessor. The lease is not cancelable and the lessee has the option for bargain purchase or renewal of lease contract at the end of the original lease period. In a direct financing lease, the lessor leases the asset by manufacturing or by purchasing from the manufacturer to the lessee directly and the lessee makes regular rental payments to the lessor. The lessor holds the ownership of the asset until the end of the lease period and the lessee holds the possession of the asset. In addition to these major types, there are some other types of lease such as sale and lease and leveraged lease. Legally, a leasing company is defined as one having the business of hiring plants or equipment or of financing their hire by others. The International...
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...a smooth expansion, and most importantly, a decision between building, buying, or leasing must be made. A. Advantages and Disadvantages of Hospital Expansion Project 1. Advantages a. Building space for the new orthopedic service line * Having the new orthopedic service line built will allow the hospital to customize their space; location of imaging machines, therapy, diagnostics, inpatient, and outpatient. * Cost is lower than purchasing an expansion property adjacent to campus: $600k versus $700k. * The hospital will own this property and benefit from any appreciation in value of the property. b. Buying space for the new orthopedic service line * The hospital will not have to wait for construction to be completed. * The hospital will own the property and will gain appreciation (equity) value for the building in the long-run. * Interest can be written off on taxes. * With historic low interest rates, purchasing will allow the hospital to own the property while paying a low interest rate on their loan. c. Leasing space for the new orthopedic service line * Low starting cost. “Leasing generally requires less cash down, and the monthly payments are often smaller” (Newman, 2006.). * “There's usually a tax benefit associated with leasing where you get to deduct the full lease payment immediately” (Newman, 2006). ...
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