Benefits to the government from leasing will vary across asset classes, market structure, depreciation schedules, credit quality, tax credits given and state of the business cycle. This paper adds more theoretical structure to the literature to support the claim that the positive-sum games do exist among the lessee, the lessor and the government on individual deals. However, we show analytically and numerically that other leasing parameters like differential lessor lessee borrowing rates, asset life and depreciation schedules also impact government tax revenue. This paper challenges the widely held view in mainstream managerial finance textbooks that the tax rate difference between the lessee and the lessor is the main motivation for leasing which allows both to save on taxes at the government's expense. In particular, two distinct conditions are considered: the case of recovery interventions and that of improvement. The procedure is a differential valuation that considers a situation before and a situation after the damage, basing on the cost approach and the income approach. The proposed approach borrows the logical principles of cash flow analysis based on the yield capitalization approach, considering both recovery costs and loss of incomes when building partial damage occurs. If criteria and methods for appraising partial damage to buildings are widely shared in the scientific and professional communities, the identification of the most appropriate capitalization rate is rather more controversial, and certainly more complex. It is important to understand how both parties value the company because such understanding may help explain why valuations performed by each party differ.From the perspective of building health monitoring and property management, this research proposes some parametric measures of the capitalization rate, in order to define a range of significant values to be used in a cash flow analysis intended for monetary evaluation in partial building damage assessment. This makes the pre-money valuation smaller than if the investment was given on an as-needed basis as the entrepreneurs want. Instead, they consider themselves committed for the total required investment at time t=0. However, VCs do not take into account the time value of money in the investment. They do this by assuming that they are exposed for the total value of the round, even though the actual flow of investment funds may be staged. VCs, on the other hand, want to minimize the pre-money valuation of the company. If the money flows into the company in stages from a single round, theoretically the time value of money is taken into account, making the PV pf the pre-money valuation larger (and the required investment smaller) than if the investment was made all at once. That is, entrepreneurs get VC money only when they need it, or when they achieve certain goals or milestones set by the VC in the term sheet. This can be accomplished by doing multiple rounds of financing or staging a single round. Post-Money Valuation - Investment = Pre-Money ValuationĮntrepreneurs want to maximize their pre-money valuation, making investment as small as possible to meet their funding needs while maximizing their ownership percentage.
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