RSM221H1 Chapter Notes - Chapter 20: Finance Lease, Operating Lease, Financial Intermediary
Document Summary
Three types of lessors company: manufacturer finance companies. The subsidiaries whose main business is to perform leasing operations for the parent company. A financial intermediary by providing financing for transactions for manufacturers, vendors, or distributors: traditional financial institutions. Subsidiaries of domestic and foreign banks that provide leasing as another form of financing to their customers. Help to conserve scarce cash an especially desirable feature for new and developing companies. Lease payments often fixed, which protects the lessee against inflation and increases in interest rates. Leasing equipment reduces the risk of obsolescence to the lessee, and in many cases passes the risk of residual value to the lessor. Lessor can benefit from the property reversion (return of the asset) at the end of the lease term. Less costly financing for lessee, tax incentives for lessor. Certain leases do not add debt on a balance sheet or affect financial ratios, and may add to borrowing capacity.
