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Fresh approach

5th May 2005, Page 52
5th May 2005
Page 52
Page 52, 5th May 2005 — Fresh approach
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Which of the following most accurately describes the problem?

Finance houses do try to come up with fresh approaches to funding; Alliance and Leicester Commercial Finance's latest offering is called Dynamic Lease.

It's a cross between a finance lease and an operating lease, and the company believes it can be accounted for as off-balance-sheet finance subject to auditor approval.

Typically it runs for five years split into two unequal parts. Years one to three are known as the major period; the remaining two years are known as the minor period. At the end of the major period the lessor has two choices: continue to lease the vehicle for the full five years, or sell it as the lessor's agent for the residual value projected for the end of year three in the original agreement. If it fetches more than this he retains 97.5% of the excess.

If he carries on leasing it the rentals will be lower than they were during the major period. At the end of year five the vehicle will be returned to the lessor, who will sell it.

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