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Looks at how the developments in the leasing industry, namely the increased competition, lower profitability, changes in tax laws and rapid technological advances, all have contributed to the increase in the number of companies getting out of the leasing business.

The lease versus purchase decision has intrigued and perplexed both the academician and the practitioner for many years. The enigmatic nature of this problem stems largely from the fact that lease‐purchase is a financial hybrid containing both financing and investment elements. The decision is unique in that the amount of financing provided by the lease alternative is not a matter of managerial discretion. Leasing commits the firm to what is, in effect, 100 per cent nonequity financing of the asset's acquisition. A purchase decision, on the other hand, allows the firm some flexibility in determining the optimal debt‐equity financing mix. This necessarily raises the question of how a firm should deal with the issue of financial risk differences between the alternatives.

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

This paper models the lessee's default options and estimates the economic value of the options for a lessee using a discrete time binomial American option pricing model. Results show a positive relationship of the option premium with the original rent and a negative relationship with the relocation costs. Finds that the default probability is higher for lessees who are more sensitive to rental changes and place less emphasis on the fitting‐out quality. Suggests that rental volatility and rental growth rate are two significant factors that have positive relationships with the default option values. The risk‐free rate, on the other hand, has an inverse relationship with the default option values because a higher risk‐free interest rate reduces the present value of rental savings. Lease term length to expiration has a positive effect on the default option value, implying that the default option premium will decay as the term to expiry is shortened.

In early 2002, an analyst, Tom Baumann, must propose terms for leasing one of his company's advanced factory-automation systems to a major customer. From the lessor's standpoint, the challenge is simply to design an annuity stream that yields a present value equal to, or greater than, the value of the asset being leased. Certain factors, however, serve to complicate the analysis. The tax exposure and debt rating of the customer are uncertain, leaving the analyst to estimate the impact of alternative lease terms under different tax and interest-rate assumptions. Also, the customer is considering leasing competing systems from companies in Germany and Japan; these competing proposals limit Primus's flexibility in tailoring its proposal. In short, the student's task is to design lease terms that exploit the lessee's tax and interest-rate exposure within constraints set by competitive terms.

This paper aims to examine the experiences of valuers when valuing market dominant and non‐dominant standard lease structures. The research compares the perceptions and approaches of New Zealand valuers when valuing gross and net leases, two standard lease types commonly utilised in the New Zealand commercial property market.

The study employs a structured survey of 87 commercial valuers practising in Auckland (where net leases dominate) and Wellington (where gross leases dominate) complemented by in‐depth interviews with senior commercial valuers employed by large national/international multidisciplinary real estate companies.

The results suggest that valuers find the process of valuing standard non‐dominant lease structures more demanding than valuing dominant leases and tend to be comparatively less confident about carrying out valuations of leases with which they are less familiar. This lack of confidence tends to result from the lack of comparable evidence and the added complexity of the valuation process requiring additional valuer expertise and judgement. In addition the study uncovers the adoption of place‐based differential valuation practices that have built up over time between the two centres under study.

The paper contributes to the literature relating to valuer behaviour by revealing that even within one country with the same rules and professional standards different valuation practices may evolve. This study specifically identifies different dominant lease structures as being one of the reasons for these differential valuation practices. The findings also highlight the difficulties perceived by valuers when valuing non‐dominant leases and in turn this may have implications when comparing the valuation outcomes of similar buildings within different markets.

In the late 1990s, the National Railroad Passenger Corporation (Amtrak) faced a rude awakening as Congress stipulated that it eliminate its reliance on federal subsidies by 2002. In response, Amtrak drew up a plan for self-sufficiency, the centerpiece of which was a new high-speed passenger service that, it was hoped, would boost revenue enough to make Amtrak self-sufficient by 2002. To run this new service, Amtrak needed to purchase $750 million worth of new locomotives and train sets in 1999. Three alternatives were available for funding the purchase: debt financing, lease financing, or reliance on federal sources. The case opens with Amtrak's CFO instructing her staff in April 1999 to review a leveraged-lease proposal that has just been submitted by BNY Capital Funding LLC. The objectives of the case are to introduce students to financial leases as a financing alternative, explore the lease-versus-buy decision and the conditions under which financial lease arrangements make sense, and exercise skills in the valuation of financial leases.

This exercise exposes students to complex lease transactions, requiring research in the FASB Accounting Standards Codification, archived standards, and future standards (exposure drafts (ED)).

Case study/exercise/assignment.

Students analyze how a retail establishment examines lease transactions to ensure its practices are in line with its mission. Students gain experience researching archived, current, and future standards. Student feedback suggests that students feel the exercise is valuable because it reinforces what they learned in earlier courses and it requires them to understand all aspects related to capital and operating leases. Furthermore, direct assessment data based on grading rubrics indicates that most students meet instructor expectations and indirect assessment data based on student perceptions indicates students are meeting the exercise learning outcomes.

This learning exercise fosters critical thinking skills; emulating professional practice issues and enhancing written and communication skills. It reinforces graduate students’ undergraduate learning related to leases.

Following six years consideration of the problem, and the production of at least two widely circulated early versions of the proposed exposure draft, the ASC formally published ED 29 in October 1981. ED 29 deals with accounting for leases, but excludes contentious lease contracts concerning rights to explore for or to exploit natural resources and similarly it does not cover licencing agreements for films, patents, copyrights etc. The exposure draft requires capitalisation of finance lease contracts in the accounts of lessees, is broadly consistent with the American, Canadian and International standards and compatible with, but more restrictive than, the Australian exposure draft (which permits, but does not require, capitalisation). In spite of the gestation period, the prior consultation with interested parties and the restricted coverage of the ED, its proposals are controversial and have provoked reaction from both lessors and lessees in the UK. Lease accounting, clearly, is not a simple matter. Indeed leasing arrangements raise many questions which encompass fundamental conceptual issues in accounting and finance. Any resolution of these issues, such as ED 29, in turn gives rise to problems of application.

There have always been situations where tenants, for one reason or another, have paid rents in excess of open market rental value. The position today, due to the downturn in the letting market, is that many more tenants are now in this position. This poses a problem for valuation surveyors when asked to express an opinion on value for sale, negative or reverse premiums, and on value for asset valuation purposes where negative values must be specified. A further point for consideration is the issue raised by the Accounting Standards Board of charging future rent obligations as a single lump sum to profit and loss accounts. Explores these challenges in relation to leasehold valuation methodology and suggests approaches.