Lease Financing - Research Paper Example

Lease Financing First e-Activities A finance lease is the one that fully transfers the rewards and risk associated with asset ownership. On the contrary; an operating risk does not fully transfer rewards and risk associated with ownership (Carmichael, Graham & Lynford, 2012). A finance lease consist of the following components from the perspective of the lessor and the lessee; If lessee happens to cancel the lease, loses are paid by the lessee and not the lessor. Gains and losses resulting from fluctuation in fair value are taken care off by the lessee.

Only the lessee can utilize the lease assets without adjustment or alterations (Carmichael, Graham & Lynford, 2012). According to Generally Accepted Accounting Principles (GAAP), a lease is recognized as purchases made by the lessee. They are capitalized in the balance sheet of the lessee. Initially, leases were treated as an off balance sheet activities and were recorded as notes in the financial statements (Andrew, 2011).Recently, financial lease are recognized in both the balance sheet as the capital item while in the comprehensive income statement are treated as expenses because interest deductions and depreciation expenses.

Therefore, health care organization will be more interested to lease long-term assets because of tax benefits and flexibility in terms of technology (Carmichael, Graham & Lynford, 2012). Additionally, the above change are anticipated to make health care organizations to rent occupancy in order to avoid recognition of lease property in the balance sheet, so that the available funds may be used elsewhere in the economy for investments purposes (Andrew, 2011). For example; according to Andrew, 2011 on a meeting held on 1st June at Dublin, he asserted that, the market for commercial property has been experiencing a drop of sixty one percent since the year 2007.

He asserted that new regulations will lead to an increase in demand for short-term leases rather than long-term leases because to higher flexibility associated with short term leases. Additionally, based on lessee perspective, lessee assumes the right to utilize a property for a given period without assuming the risk associated with property ownership and upon expiry of the lease agreement, he may return the property to the lessor or renew the agreement and continue using the property. Second e-Activities Business valuation involves determining the worth of a business.

The methods of business valuation include: Discounted cash flow method, earning approach, assets based approach and market value approach (Holton, & Bates, 2009).The discounted cash flow approach focuses at predicting future incomes by dividing the present earnings with the capitalization rate. On the other hand, earning approach determines the value of the business by predicting its ability to produce future earnings under this method; past earnings are divided by capitalization rate to determine the ability of a business to generate future earnings (Holton, & Bates, 2009).

Connectively, market value approach compares the value of your business to that of other business within the same industry in the market (Holton, & Bates, 2009).All the above methods are similar in the sense that, they are applided to determine the value of a business. Discounted cash flow method is the most viable method because it focuses on business potential to generate cash flow. The method utilizes the free future cash flow divided by Weighted Average Cost of Capital (WACC) (Holton, & Bates, 2009).

REFERENCES Andrew .W, (2011).Treets Ahead: Changes in Regulation give rise to Short term lease and Owners Occupant. Knight Frank Ltd.Retrieved :< http://www.knightfrank.ie/news/short-term-leases.aspx> on 29th November 2012. Carmichael, D. R., & Graham, Lynford. (2012). Accountants Handbook, Special Industries and Special Topics. John Wiley & Sons Inc. Holton, Lisa, & Bates, Jim. (2009). Business Valuation for Dummies: Epub Edition. John Wiley & Sons Inc.