Another model relating to influence of dividend policy on valuation of the firm in terms of market value of shares was put forward by Myron J. Gordon. It is based on relevance concept of dividend policy. According to him the market value of a share is equal to the present value of dividends to be [...]
Modiglian and Miller put forward the hypothesis that dividend is a passive variable and it does not influence the share valuation. Thus M-M model is known as Dividend Irrelevance Model. Modigliani and Miller provide the most comprehensive argument for the irrelevance of dividends. They argue that, given the investment decision of the firm, the dividend [...]
In our daily life we come across arrangements like taking cycle on rent for certain hours or days. Now a days scooters and motor cars are available for a rental. Thus the asset is available for use for a very short period from the owner. But in case, an asset is given to some persons [...]
From the above definitions of lease, the following characteristics of lease can be pointed out:
(1) In lease transaction, the lessee does not get the ownership of the asset, but gets a right only to use the asset.
(2) The amount regularly paid for the use of such asset is called rent or lease rental. As it [...]
Many types of lease contracts are seen in practice, some of which are as follows:
(1) Financial Lease: A long term lease contract which extends over the whole useful life of an asset and which cannot be cancelled is known as Financial Lease. The duration of the lease is almost equal to the useful life of [...]
Looking to the above discussion, it seems both hire purchase and leasing are similar. But the main difference is that in case of hire purchase the intention of the buyer is to purchase the asset and he only pays the price by installment. The possession of the asset remains with the buyer and ownership is [...]
Before deciding whether to take an asset on lease, the following factors must be considered
(1) Availability of Cash: When the firm does not have enough cash on hand, it is left with the only alternative to take the asset on lease, as full price is to be paid in case of purchase of the asset [...]
When we discuss the implications of lease financing, we must decide whether a particular asset should be purchased or should be leased on payment of a rental. Here, the present value of cash outflows of both the alternatives must be calculated and the alternative which has a lower p.v. of cash outflows must be selected. [...]
There are two main reasons for the development of leasing; the first is the provision of 100% finance and second, tax benefits. We describe them in detail below:
(1) Provides Full Finance: Provision of 100% finance is the main benefit of leasing. If the lessee borrows money from banks to purchase the asset, he gets 70-80 [...]
(1) No Benefit of Residual Value: When a firm purchases an asset, it has full rights to the value of the asset at the end of its useful life. But this benefit is not available to the lessee in case of lease. This is particularly important in assets like land, building and certain kinds [...]