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1、nPreferred stocknLeasingnWarrantsnConvertiblesnRecent innovationsCHAPTER 20Hybrid Financing:Preferred Stock,Leasing,Warrants,and ConvertiblesLeasingnLeasing is sometimes referred to as“off balance sheet financing if a lease is not“capitalized.In other words,it is not shown on the balance sheet.nLeas
2、ing is a substitute for debt financing and,thus,uses up a firms debt capacity.More.nCapital leases are different from operating leases:lCapital leases do not provide for maintenance service.lCapital leases are not cancelable.lCapital leases are fully amortized.Analysis:Lease vs.Borrow-and-BuyData:nN
3、ew machine costs$1,200,000.n3-year MACRS class life;4-year economic life.nTax rate of 40%.nkd=10%.More.nMaintenance of$25,000/year,payable at beginning of each year.nResidual value in Year 4 of$125,000.n4-year lease includes maintenance.nLease payment is$340,000/year,payable at beginning of each yea
4、r.Depreciation ScheduleDepreciable basis=$1,200,000MACRS Depreciation End-of-YearYear Rate Expense Book Value 1 0.33$396,000$804,000 2 0.45 540,000 264,000 3 0.15 180,000 84,000 4 0.07 84,000 0 1.00$1,200,000In a lease analysis,what discount rate should cash flows be discounted at?Since cash flows in a lease analysis are evaluated on an after-tax basis,we should use the after-tax cost of borrowing.Previously,we were told the cost of debt,kd,was 10%.Therefore,we should discount cash flows at 6%.A-T kd=10%1 T=10%1 0.4=6%.