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Using Technology to Lease Technology

By Howard K. Weber
March 29, 2006
Since leasing was first used as a financial tool, pricing has been a complex matter. To price properly, many variables must be taken into account including: funding date, credit rating of lessee, residual assumed, tax rate, term of the transaction, desired spread over an index, etc.

Once all the variables are determined, a mathematical algorithm may generally be used to determine the lease rate, assuming that some general assumptions beyond the specific ones mentioned above remain static.

In the early days of leasing, before computers enabled lessors to calculate rentals easily, most lessors used the ever-famous 'blue book' to determine lease pricing. For those of you too young to remember vinyl LP records, telephones with dials, and television sets that only showed black and white pictures, the 'blue book' was a rather thick reference manual filled with lease rate factors for various combinations of the variables mentioned above. Naturally, while the blue book was useful for some combinations, it was not useful for all combinations, and many times the lease practitioner had to make estimates of rates by interpolating between two rates.

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