Spreadsheet Models for Managers

Session 10

Capital Leases II
Summary of Pages

n this final session of the series on capital leases, we explain how to model the effects of a stream of lease events that occur under the terms of a single lease agreement. Since each event triggers its own set of cash transactions, interest payments, principal payments, and depreciation, tracking the effects of such a stream on the three financial statements can be nightmarishly complex.

We'll show you how to use convolution and the Lease Characteristic Array to make a simple model that predicts these effects as well as can be known. Using this technique, the fidelity of your model will be limited not by your ability to deal with complexity, but by your ability to forecast the business terms of the lease and the schedule of purchases. This is our goal — to remove complexity as a barrier to model fidelity.

Below is a summary of pages for Session 10.

1. Review of Last Time
2. Capital Leases vs. Operating Leases
3. Accounting for a Capital Lease
4. Capital Lease: One-time Event
5. Multiple Lease Events
6. Lease Characteristic Array
7. LCA Example
8. Using the LCA Approach
9. Choose Operation Order Wisely
10. Preview of Next Time

Links to other materials for Session 10.