Using the Lease / Loan Analyst view, you can:

• Analyze capital leases, operating leases and loan agreements thoroughly.
• Perform side-by-side analysis of alternative scenarios to quickly identify measurable differences.
• Compile the Net Advantage to Leasing (Loan Equivalency) report to compare any lease against the equivalent purchase option.
• Produce in-depth Lease and Loan Analysis reports to determine net cash flow and Net Present Values before or after taxes and depreciation.
• Create detailed customized Payment Schedules showing principal payments, interest costs, sales taxes, depreciation and closing balances by fiscal period.
• Simulate potential risk exposure should loan interest rates fluctuate during specified From-To time periods.
• Calculate potential savings or project revised loan termination dates should payment amount be increased or decreased during specified From-To time periods.
• Simulate demand loan conditions by estimating new loan draws at selected intervals to budget future interest costs.
• View summary statistics including Effective Interest Rate and Net Present Values after all costs are factored into the equation.

Lease / Loan Analyst Dialog Box

Highlights

Two-Panel Display

Using panel A and panel B, you can create and view any two scenarios simultaneously (Capital Lease, Operating Lease or Loan). This concept is very effective when using one panel to display a base lease or loan while using the second panel to simulate alternative settings for one or more of the parameters. The Copy A to B and Copy B to A options let you transpose the values from either panel onto the next to minimize repetitive data entry.

Summary Statistics Columns

To the immediate left of panel A and to the right of panel B, Lease Analyst provides a column of fields used to display statistical summary data about the lease or loan you have created in the corresponding panel. These fields are updated immediately once you click the Calculate button:

• Adjusted Interest Rate
• Effective Interest Rate
• Present Value
• Total Outflow
• Other Outflow
• Total Interest
• Last Payment Date

These fields provide a quick summary about the lease or loan you are working with. If you use both panels to compare different options about the same lease or loan, these fields offer a convenient way to quickly visualize the main differences.

Data Entry Tab Sections

Lease Analyst lets you enter comprehensive information about any lease or loan. The entry fields are organized in sets divided amongst five tab sections. The available tabs and the objectives of each are as follows:

• Detail - This tab is used to enter the basic lease/loan parameters such as interest rate, compounding periods, payment frequency, etc.
• Fees/Taxes - This tab is used to record front- and back-end fees as well as setting up the sales taxes on lease payments. You can track up to three taxes such as Federal, State, County, PST and GST. Cash flow can be adjusted to eliminate the effects of recoverable taxes such as the GST in Canada.
• Advanced - This panel is used to enter excess usage charges and to define special payment terms such as security deposits, first and/or last payment in advance, etc. These parameters are used in the calculations to adjust your EIR and NPV accordingly.
• Depr - This section lets you custom define your company's depreciation profile. Lease Analyst supports Straight Line, Declining Balance, Compound and Sum of Digits methods of depreciation. Depreciable value can be adjusted to account for downpayment amounts (not reflected in the lease amount) and estimated residual values at the end of the lease.
• Simulate - This tab is used to simulate the impact of variable interest rate conditions and consequences of increasing principal payments or drawing new advances at specified From-To time periods. This tab also includes summary statistics fields that let you compare the consequences of any program against the main statistics. For example, the exact date a loan will be paid out should you make specified principal prepayments as compared to the end date assuming normal payments.

Command Buttons

The following command buttons are displayed at the bottom of each panel:

• Calculate - All values, including EIR and NPV are updated each time you click this button. When you change the lease or loan data to simulate new combinations, simply click this button to revise all the values.
• Schedule - Click this button to compile the Payment Schedule report for the lease or loan in the corresponding panel. The report template lets you customize the contents to your exact specifications.
• Analysis - Click this button to compile a detailed Capital or Operating Lease Analysis report summarizing net cash flow and NPV before/after taxes and depreciation.
• NAL - The Net Advantage to Leasing report provides you with the most in-depth loan comparison report available anywhere today.
• Copy - This button lets you copy the scenario data from one panel to the other so that you can compare the impact of any changes against the base parameters.

Reports

You can create three different styles of reports in Lease Analyst. These are as follows:

• Payment Schedules - Use this template to list principal, interest, taxes and depreciation records by period.
• Analysis Reports - This report style provides in-depth analysis of cash flow and Net Present Values before / after taxes and depreciation.
• Net Advantage To Leasing Report - Also referred to as the Loan Equivalency report, this report style lets you compare a lease against its equivalent purchase option to determine your best alternative.

Each report can be customized by defining such parameters as corporate tax rates, discount rates, fiscal period year end and printing preferences. Reports are created using the MS Word Viewer which is included with the product. Alternatively, you can use your Word Processing or Spreadsheet program or transfer the data directly to the Clipboard. This allows you to use your application's extensive reporting and analytical features to create professional reports and graphs or to perform more in-depth analysis.

FAS # 13 Wizard

According to FAS No 13, a capital lease is defined as a lease that meets any one of the four criteria:

Criteria 1.  Transfer of Ownership

If the lease agreement transfers ownership to the lessee before the lease expires, without payment of additional compensation to the lessor, the lease is considered a purchase / financing arrangement.

Criteria 2.  Bargain Purchase Option

The lease is deemed to be a Capital Lease if the lessee can purchase the asset for a bargain price when the lease expires. A bargain purchase option requires comparing the option's purchase price to the leased asset's expected residual value at the maturity of the lease. If the purchase option is well below the expected residual value, the lessee is unlikely to pass up the savings, and the probability is high that the lessee will buy the asset at maturity.

Criteria 3.  Seventy-five Percent of Economic Life.

For the lease to be defined as a Capital Lease, the lease must last for at least 75 percent of the asset's expected economic life. A bargain renewal option, that is, an option to renew the lease at a rental rate below the expected fair-market rental at the time of the exercise of the option, is considered to lengthen the lease life used in this determination.

Criteria 4.  Ninety Percent of Asset's Value.

The present value of the minimum lease payments must be at least 90 percent of the asset's fair value for the lease to be deemed a Capital Lease. The minimum lease payments are defined as "the payments that the lessee is obligated to make or can be required to make in connection with the lease property." Periodic payments account for the majority of the minimum lease payments. Other components include such items as the bargain purchase option or bargain renewal option payments. Some leases also contain additional provisions that are included as minimum lease payments, such as a guaranteed residual value by the lessee or a penalty for failure to renew if it is expected that the lessee will pass up the renewal option.

The determination of the appropriate discount rate at which to discount the lease payments is very important. FAS No 13 states that the lessee is required to compute the present value of the minimum lease payments using the lower of the lessor's incremental borrowing rate or the implicit discount rate used by the lessor. The lessee's incremental rate is defined by FAS No 13 as "the rate that, at the inception of the lease, the lessee would have incurred to borrow the funds necessary to buy the leased asset on a secured loan with repayment terms similar to the payment schedule called for in the lease."

Lease Analyst FAS No 13 Wizard

WorthIT Lease Analyst FAS No 13 wizard uses the data you submitted for a lease and applies the above criteria to provide you with a summary to be used as a guideline in formulating an opinion.