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Companies can either buy or lease assets it needs on a long-term basis. For example, a firm can buy a truck required for the business or lease the truck. A company usually leases a long-term asset if it either 1) does not have the money to buy it and 2) does not want to borrow the capital required to buy these assets. The business case should be the driver of this decision. Sometimes, companies may lease the asset because it does not have money to buy the asset or wants to avoid taking on more debt. Accounting rules specify the conditions required to treat an operating lease as a capital lease and capitalize it.

What impact does capitalizing an operating lease have on the cash flow statements? We address this question here with a live Microsoft Excel model.

Companies can either buy or lease assets it needs on a long-term basis. For example, a firm can buy a truck required for the business or lease the truck. A company usually leases a long-term asset if it either 1) does not have the money to buy it and 2) does not want to borrow the capital required to buy these assets. The business case should be the driver of this decision. Sometimes, companies may lease the asset because it does not have money to buy the asset or wants to avoid taking on more debt. Accounting rules specify the conditions required to treat an operating lease as a capital lease and capitalize it.

What impact does capitalizing an operating lease have on the Income statement? We address this question here with a live Microsoft Excel model.

Companies can either buy or lease assets it needs on a long-term basis. For example, a firm can buy a truck required for the business or lease the truck. A company usually leases a long-term asset if it either 1) does not have the money to buy it and 2) does not want to borrow the capital required to buy these assets. The business case should be the driver of this decision. Sometimes, companies may lease the asset because it does not have money to buy the asset or wants to avoid taking on more debt. Accounting rules specify the conditions required to treat an operating lease as a capital lease and capitalize it.

What impact does capitalizing an operating lease have on the income statement? We address this question here with a live Microsoft Excel model.

Many of our students mix up the difference between sustainable growth rate and internal growth rate. We address the difference between sustainable growth rate and internal growth rate on this page.

Most companies benefit from R&D spending in the form of acquired know-how. This acquired know-how is a valuable asset that produces cash flow in the future. Analysts and investors should want the value of R&D spending in the balance sheet. So R&D should be treated like another investment and the R&D spending capitalized like other assets such as an investment in a building.

How does capitalizing R&D expenses impact the cash flow statements?

Companies can either buy or lease assets it needs on a long-term basis. For example, a firm can buy a truck required for the business or lease the truck. A company usually leases a long-term asset if it either 1) does not have the money to buy it and 2) does not want to borrow the capital required to buy these assets. The business case should be the driver of this decision. Sometimes, companies may lease the asset because it does not have money to buy the asset or wants to avoid taking on more debt. Accounting rules specify the conditions required to treat an operating lease as a capital lease and capitalize it.

What impact does capitalizing an operating lease have on the balance sheet? We address this question here with a live Microsoft Excel model.

The value of any asset is equal to the present value of all future cash flow is the concept being relied on when valuing a firm using the DCF valuation method. Does the interest rate factor in your model? If so, how does the interest rate factor in your model? There are at least two ways the interest rates are accounted for in a DCF valuation model.

We discuss the different ways interest rates can factor into your DCF valuation model on this page.

We need the values of debt and equity to estimate the cost of capital and WACC. The book values of debt and equity are easier to obtain. But note that we ideally want the market values of debt and equity and not the book values of debt and equity. Why?

What are the drawbacks of using book values in computing the weights of capital?

Risk is a given in any investment. It is incorporated into valuation in the cost of equity and debt which flows into the discount rate. International projects are considered higher risk given the potential for political and/or currency fluctuations. Therefore a risk premium is added for international projects.

We look at the question: “Are country risk premiums a one time task or does it need to be revised frequently?” on this page.