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Alternative profitability the profitability obtained from investment projects with similar risk and return
Back lease the essence of the lease operation is that the owner of the asset (usually used equipment) sells it to the lessor, who lets it out on lease
Buy back option the buy back option includes the right of the lessee to buy the object of the lease bargain, as well as the right of the lessor to demand from the lessee to buy it
Capital budgeting managing the investment process in compliance with financing decisions
Captive subordinate lease company, formed by producers of assets which are objects of lease operations
Cash flow each directed capital movement; the positive cash flows are inflows, and the negative are outflows
Direct lease a lease in which the lessee obtains from the lessor the right to use an asset, which he did not possess before
Discount Rate a rate, which is used in determining the present value of future cash flows
Export lease transaction between three parties in which the lessor buys property from a producer from his own country and delivers it to a lessee from another country
Financial lease a lease contract, which “basically transfers all the risks and benefits related to the ownership of the asset” to the lessee
General – irrevocable lease term a term, which covers about 75% of the estimated useful life of the asset. During this period the sides do not have the right to terminate the contract, except for reasons explicitly stated in the contract
Hire purchase a rent contract with an option for purchase at the end of the lease period
Interest rate in the lease contract the discount rate, which, when applied in the beginning of the lease, determines the total amount of the minimal lease installments from the lessor’s point of view
Intermediaries in the lease transaction parties in the lease transaction which cooperate in accomplishing the transaction during the different stages
Internal rate of return one of the modern methods of capital budgeting, which gives an account of the time value of money
Lease contract according to which one of the parties, the owner of a given fixed asset, called lessor, grants the use of that asset to a second party, called lessee, in exchange for specified payments during a predetermined period. After the end of that period, the lessee may also become the owner of the property which is an object of the lease transaction
Lease installments payments which the lessee is obliged or can be forced to make during the term of the lease contract
Lease scheme the general parameters of the lease – installment amounts, number, frequency and time of payment, interest rate, basic calculated price, extra costs paid by the lessor
Lessee the party to the lease which gets the right to use the leased asset for a specified period and through periodic installments
Lessor the owner of the asset and party to the lease which grants to the lessee the right to use that asset for a specified period and through periodic installments
Leveraged lease a lease whereby the lessor gives the asset to the lessee, but uses credit from a third party to purchase the asset from the producer
Mathematical model an abstract model of real objects reflecting their most significant features from the observer’s point of view, constructed with the help of mathematical methods. The model is an artificial, expedient, simple system, which allows the observer examining the model to come to conclusions on the real system. Usage of the model in many cases produces information, which normally cannot be obtained through direct examination of the real object
Minimum required return the lower limit of profitability, which the investor wants to оobtain
Net lease a lease transaction whereby the lessee assumes all the risks and obligations related to the ownership and exploitation of the property – maintenance, repairs, insurance, training the staff, materials supply, management of the production process
Net expenditures of the lessor all expenditures minus eventual positive effects of the lease for the lessor
Net present value one of the modern methods of capital budgeting, accounting for the value of money in time
Off -balance sheet asset reporting recording the asset in off-balance sheet accounts. In operating lease, the lessee reports the asset in an off-balance sheet account, because it is treated as an outside one
Operating (exploitation) lease a lease which does not fit in the financial lease conditions. The operating lease is applied for specialized equipment which depreciates quickly and has well-developed secondary market. The lease installments cover only partially the lessor’s expenses, so when the lease term expires, the asset is usually sold or let out on lease again
Residual (liquidation) value the estimated selling price of the asset at the end of the specified term for its practical use in the company, after costs associated with liquidation. When the residual value is up to 5% of the asset’s reported value, we do not take it into account in determining the depreciation amount
Supplier’s lease a lease whereby the producer sells the property to a leasing company and receives the payment at once. At the same time, the producer rents the same asset and lets it out by sub-lease to a final lessee. The general point of that kind of lease operation is realization of sales of equipment on markets with low purchasing power
Tax effect shows the impact of income tax on lease evaluation. It is calculated by multiplying the tax rate by the cash flow, which increases or decreases taxable profit
Term of the lease contract the irrevocable term for which the lessee has signed a contract to use the asset, together with all further periods for which the lessee will have the right to choose whether to continue renting the asset in exchange for payment or free of charge, if at the start of the lease there is a great certainty that the lessor will exercise his right to choose
Transit lease a lease in which the lessor, the lessee and the supplier of the object of the lease contract are from three different countries
Useful life of the asset the estimated term for practical use of the asset in the company
Wet lease a lease transaction whereby the lessor pays the additional costs for maintenance, repairs, insurance, training of the staff
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