Financial Leases
Example - cont
Greymore Bus Lines lease cash flows can also be thought of as loan
equivalent cash flows.
0 1 2 Year 3 4 5 6 7
Amount borrowed at year end 89.72 77.56 60.42 46.64 34.66 21.89 10.31 0.00
Tax shield @ 35%Interest paid @ 10% -8.973.14 -7.762.71 -6.042.11 -4.661.63 -3.471.21 -2.190.77 -1.030.36
Principal repaidInterest paid after tax -12.15-5.83 -17.14-5.04 -13.78-3.93 -11.99-3.03 -12.76-2.25 -11.58-1.42 -10.31-0.67
Net cash flow of equivalent loan 89.72 -17.99 -22.19 -17.71 -15.02 -15.02 -13.00 -10.98