Break Even Lease Rental

The break-even lease rental (BELR) is the rental at which the lessee is indifferent to a choice between lease financing and borrowing buying. Alternatively, BELR has a NAL of zero. It reflects the maximum level of rental that the lessee would be willing to pay, If the BELR exceeds the actual lease rental, the lease proposal would be accepted, otherwise it would be rejected.

Lessors Viewpoint

The lease evaluation from the point of the lessor aims at ascertaining whether to accept a lessee proposal or to choose from alternative proposals. As in the case of an evaluation be a lessee, the appraisal method used is the discounted cash flow technique based on the lessor's cash flows. The lease related cash flow from his angle consists of (a) outflows in terms of the initial investment acquisition cost of the asset at the inception of the lease, income tax on lease payments, sales tax on lease transaction, if any, lease administration expenses such as rental collection charges, expenses on suits for recovery, other direct costs and so on. (b) inflows such as lease rentals, management fee, tax shield on depredation, residual value and security deposit, if any, and so on. The lease evaluation from the point of view of a lessor is illustrated here and includes aspects such as break even rental for the lessor, negotiation and fixing of lease rentals.

Share This