Economic Analysis on Rent of Equipment Lease of Coal Enterprise

Dec.2002Journal of China University of mining technologyVol. 12 No. 2Economic Analysis on Rentof equipment Lease of Coal EnterpriseTONG Leⅸ童磊), WANG Li-ji王立杰)School of Management CUMT Beijing 100083, ChinaAbstract: Rent is the key factor in equipment lease the business that equipment lease company of coal miningoften engaged in can be divided into three kinds, that is sublease, operating lease and inter lease, in term ofthe difference of the role of lease, character of business object of the trade and condition of the market. Theproblem in rent calculating of the three kinds of lease that equipment lease company of coal mining often involved wasanalyzed. Hope to be helpful to the decision-making of the equipment lease company of coal miningequipment lease sublease operating lease inter lease,rentCIC number: TD 407. 21 F721 6 Document code: A Article ID: 1006-1266 2002 02-0169-03Introductionquipment but be short of capital equipment leaseLately some equipment lease company has company purchase and then lend to the enterprisecome into existence in coal mining group enterprisethe equipment ordered by enterprise themselvesin China. The equipment lease company takeThat is finance lease. The lessor obtains rent to re-charge of the investment update and technical reno- covery all cost interest and profit by stages. Whenvation of laras excavating con-the lease expires the ownership of equipment usualstructing and mobile equipments that are used in coal ly will be transfered to the lessor by taking nominalmining. It lends equipment to the coal mining enter- price of the equipment. Involved with giant equipprise and gets the rent. The equipment lease compa- ments if the equipment lease company has weakny usually has three kinds of operating sublease, bility in debit and credit or lake of financial tech-operating leasingand the source of the capital is limited, subThe profit of both the leaser and lessee relates lease is adoptedto rent, so the reasonable rent is the key factor in 2. 1 Economic analysis on decision-making aboutthe operation. This paper analyzes the problem howlease or notto determine the rent in the three lease operations ofse days the equipment leasing company usucoal enterprise. Hope to be helpful to the decisally is short of financing ability in China. By submaking of the equipment lease company of coal minlease it can take advantage of other large lease company to obtain giant equipment of coal mining. Sub2 Sublease( Transfer Leaselease has a lot of advantages as a new financial wayBut rather than leasing management may often de-Sublease means that the equipment lease com- cide to buy a new machine. So economical analysis ispany firstly hires equipment as lessee from large e- necessary when they make decisions involves giantquipment lease company or equipment manufactur+l- easlibility of the projecter, then lends equipment as lessor to the enterprise h中国煤化工-ipment is deemed desirthat needs equipment. Sublease developed on the ba- able. luc imani ucusiul can be made on the basis of finance lease. [1]When enterprises acquire e- sis of a criterion of least cost by comparing the costReceived date 2002-03-19地哪据16(19 om Hefei Anhui Province lecturer, master of management science and engineering engaged in t170Journal of China University of Mining technologyVol. 12 No. 2of buying or leaserage interest number apparent interest and in turnThe annual cost of purchasing is calculatedoften be used to compare or measure the total rentalfollows1 rate of leaseACp= PA/P,i n ) W( 1-t)∑R1)×100%t·Dn-SA/F,,n)(1)where: P is purchase price of the equipment WI isWhen interest rate keeps constant the rate ofI operating costs in purchase way itis incomelease increases sharply with the increasing of thetimes of repayment. When times of repayment keeptax rate Dn is annual depreciation S is salvage valconstant the rate of lease increases slowly with theue of equipmentThe annual cost of leasing is determined as folincreasing of interest rate. So the times of repay.ment are determinant to the rate of leaselows2)Average interest number CACL=R+W(1-t)+DA/P,mn)ⅨA/F,m),(2)PVwhere: R is annual rent ; W2 is annual operatingThe interest rate has a little influence on thecosts in lease way D is down payment can be re- average interest number, but the length of lease andcovered at the end of the periodthe times of repayment affect the average interestIf there is no down payment, the equation is number greatly. The higher the average interestnumber is the more rent the lessee will pay in theACL=R+WAI-to)(3)period of lOnly when ACLs ACp the company should3 )Apparent interest itaking lease to obtain equipment. Setting ACL-2R-PVACp, the rent is the highest acceptable rent whenthe equipment leasing company as lessee in subleasewhere N stands for the total years of les2.2 Rent analysisGenerally the higher the annual interest rateRent is computed by equal annuity methodis the higher the apparent interest rate is. As theNamely setting the present value that is discountedlonger term of lease and more times of payment theby specified ratio of the total rent which will occur inapparent interest rate will decrease at the given in-future period of lease equal to the budgetary estimateterest rate, but the actual annual interest rate willlcost. The rentof each period is even. In term of not decline. Therefore, the high actual annual inter-times of payment the rent calculating formulas areest rate may be concealed by the low apparent inter-respectively as followsest rate as result of long-term lease and more timesIf the rental payments are made at the end ofof paymentthe period3 Operating LeaseR= Pu i(1+iy(1+iy-1(4)Operating lease for equipment lease company ofIf the rental payments are in advancecoal mining means that the lease company lends theR=PW1+i)y-1equipment to a coal enterprise that is not subordinate(5)1+iy-1+1+iy-1-1to the same coal mining group. The distinguishingn the equation, PV is the budgetary estimate feaiting lease is its relative short -termcoStaccording to the purchase price of中国煤化工recover total investtransport cost insurance finance cost and so on 'n metCNMH Gwill take the risk of obis the term of lease i i is interest rate. Suppose sal- solescence of equipment during the period of operating lease and provide services that include mainteparameters can be calculated by the total nance. Therefore the rent of operating lease is hightal det高整bove, that is rate of lase r aveThe calculate formula of rent of operating lease isTONG Lei et alEconomic Analysis on Rent of Equipment Lease of Coal Enterprise171as followspenses overhead expenses material expensesP(1+i)+M+O+T+1+Jincidental expenses transport costs(9)(1+iy(6)Which calculate formula is being introduced according to particular situation. Actually the threewhere: PV is the budgetary estimate cost R is anformulas above can be consolidated by one formulanual rent M is annual upkeep costs ;O is annual op-depreciationerating costs ,T is annual tax i I is annual insurance iJ is annual other expenditure in is service years of penses interest of the old price of the equipmenthandling charge material expenses incidental expenses transport costs(10)4 Inter LeaseConfined some conditions, formula(10)willbecome formula(7), formula(8 ), formula(9)sepInter lease for a lease equipment company ofarately. The particular conditions are followscoal mining means that the lease company lends theWhen equipment user pays the incidental exequipment to a coal enterprise that s subordinate tothe same coal group enterprise 41. As the both sidespenses and transport costs and there are little materi-al expenses, formula( 10) is identical with formulain inter lease are subordinate to the same group(7)their trade are noton in the pure market butWhen equipment user pays the incidental exin the organizing inter market. The lease pricewhich is different from free market price is worked penses and transport costs and handling chargechanged to be overhead expenses formula( 10)out on the basis of inter cost combing the totalstrategic goal of group company. Making inter pricedentical with formula(8)When there are little material expenses andstems from strengthening the specialization manage- handling charge is changed to be overhead expensesment, reducing the costs and enhancing the wholeformula( 10 )is identical with formula(9)competition of the enterprise. Moreover the bothThe lowest price of inter lease should be thesides engage in trade time after time in organizingmaterial expenses, incidental expenses transportinter market. It can reduce the transaction costs andcosts, repair expenses moderate overhead expincentive of opportunism that exist in free trademarket. Accordingly the inter price is usually lowerCor handling charges ) The higheprice calculated by formula ( 10)than the lease price of the outer marketThe inter lease price can be calculated as fo5 ConclusionsOwSn the three kinds of lease for the lease equipinter lease price= depreciation repair exment company of coal mining, the role of lease thepenses interest of the old price of the equipmentcharacter of the business object and terms of tradehandling chaare different. So the analysis models and computermethods about rent are different. The lease equipnter lease pricereciation t repair exment company of coal mining should adopt correpenses overhead expenses material expenses(8) spond computer formulas to decide reasonable rentaccording to particular business to ensure the business suCcesInter lease pricerepair ex中国煤化工ReferencesCNMHG[1]胡安明李章夏冰.租赁会计[M]北京中国审计出版社1998.11-21[2 Arthur CC H. Lease or purchase: theory and practice[ M ] Boston: Kluwer- Nijhoff Publishing 1984. 731刘盟分会煤F内用4119优化对策J]中国设备管理200(11):18-19