Understanding the Lease Versus Buy Results
Once the Lease Versus Buy has been generated, LeaseAccelerator creates a PDF version of the analysis.
This includes a high-level overview of the results, a break-even analysis section, the key rates used in the analysis, along with the lease terms used.
Additionally, the analysis outlines all the relevant cash flows and tax deductions for both a lease and buy scenario.
Download a PDF version of the guide.
The top section includes key participants such as the Lessee and Business Unit. You will also see the name of this LvB analysis and the user who generated it.
Results Section
Under the Results header, you will see the PV of Net After-Tax cash flows for both a lease scenario and a buy scenario.
You will also see if the analysis favors a lease or a buy in this section and the difference in PV between the two scenarios.
Break-Even Analysis Section
Another informative section of the PDF is the Break-Even Analysis. This section tells you what your maximum payment amount can be and still favor a lease, with all other parameters being the same. If the analysis favored buy, this section will explain the payment needed to change the financial benefit. You can use this information to go back to your Lessor and try to negotiate a more favorable rate.
Indicative Lease Classification Section
Underneath the Results section is an indicative accounting classification test. It is based on the most commonly used bright-line tests per the various accounting standards.
Cost Basis Section
In the Cost Basis section, the details of your assets are outlined, including the original equipment cost, salvage value, and any upfront fees due for either a lease or a purchase scenario. It also includes the economic life and depreciation method used for the tax calculations.
Key Rates Section
Under the Key Rates section, you will see all of the data points used in the analysis, including all the rates used and the rate basis or discount rate used to arrive at the PV for each cash flow.
Lease Terms Section
In this section, all of the terms for the lease scenario will be listed, including the estimated lease start date, term and payment amount, and end-of-term option.
Annual and Monthly Cash Flows
The remaining pages of the PDF analysis go through each of the cash and tax flows for each scenario, both annually and monthly. The analysis takes into consideration actual cash flows occurring as a result of the specific transaction being evaluated. The tax benefit is a result of an actual cash tax payment.
The Lease Net Cash Flows: Annual Report breaks down lease payments and tax benefits for the life of the lease by year. The Buy Net Cash Flows: Annual Report does the same thing, but for the buy scenario, which will include Debt Repayment and Interest.
Annual and Monthly Tax Deductions
Next is the breakdown of Lease Tax Deductions by year, which includes any Fees, Depreciation, Lease Expense, and NOL Adjustments, along with the total federal tax deduction, which is equal to the total deductions less the tax benefit created for state taxes.
In this example, the Federal tax benefit that is listed under the Lease Net Cash Flows: Annual Report of $467.03 for the year 2020 is derived by multiplying the Federal Tax Deduction of $1,796.28 times the federal tax rate of 26% as shown in the rate section. This is how the tax benefit is calculated.
The same breakdown for the Buy Tax Deductions by year includes any Fees, Depreciation, Interest payments, and NOL Adjustments in addition to the federal tax deduction.
The PDF gives the same Tax Deduction breakdown by month.