Structured Finance
Leveraged leasing
Hardware Leasing Company
Data:
Value of equipment $ 1,000,000
Asset life 15 years
Residual value $ 200,000
Tax life 7 years
Leasing company's tax rate 30%
Leasing company's required IRR 15%
Lease
Tenor of lease 15 years
Frequency 12
Rate on lease 6.5%
Monthly lease payments $8,052
Leveraged financing
Amount of debt $ 800,000
Tenor of debt 15
Rate on debt 7.50%
Terminal payment $ 200,000
Frequency 12
Monthly loan payments $6,812
Total PV to Hardware Leasing
Initial equity investment $ 200,000
Required return 15%
Monthly net lease receipts $1,240
Period of net lease receipts 15 years
PV of net lease receipts $88,606
Residual or EBO value $ 200,000
Date of residual value 15 years
PV of residual value $ 21,376
Final or EBO payment to bank $ 200,000
Date of final payment 15 years
PV of final payment to bank $ (21,376)
Monthly tax shield (using DDB) $ 7,143
Period of tax savings 3.5 years
PV of tax savings $232,295
Total Net Present Value $120,901
Structured Finance
Leveraged leasing
Hardware Leasing Company
Data:
Value of equipment $ 1,000,000
Asset life 15 years
Residual value $ 200,000
Tax life 7 years
Leasing company's tax rate 30%
Leasing company's required IRR 15%
Lease After 10 years
Tenor of lease 15 years 5
Frequency 12 12
Rate on lease 6.5% 6.5%
Monthly lease payments $8,052 $8,052
$556,169 PV
Leveraged financing
Amount of debt $ 800,000
Tenor of debt 15 5
Rate on debt 7.50% 7.50%
Terminal payment $ 200,000 $ 200,000
Frequency 12 12
Monthly loan payments $6,812 $6,812
$477,577.03 PV
Total PV to Hardware Leasing
Initial equity investment $ 200,000 $ 200,000
Required return 15% 15%
Monthly net lease receipts $1,240 $1,240
Period of net lease receipts 15 years 10 years
PV of net lease receipts $88,606 $76,866
Residual or EBO value $ 200,000 $556,169
Date of residual value 15 years 10 years
PV of residual value $ 21,376 $ 125,257
Final or EBO payment to bank $ 200,000 $477,577.03
Date of final payment 15 years 10 years
PV of final payment to bank $ (21,376) $ (107,557)
Monthly tax shield (using DDB) $ 7,143 $ 7,143
Period of tax savings 3.5 years 3.5 years
PV of tax savings $232,295 $232,295
Total Net Present Value $120,901 $126,861