Exacutive Summary Amtrak Essay Example

over two decades at an annual interest rate of 6.75% with semi-annual payments amounting to $12.303 million. Given Amtrak's projected operating deficit, it is assumed that there will be no corporate tax imposed. The lifespan of the equipment acquired is expected to span 25 years with a salvage value estimated at 15% of its initial cost upon expiry. After analyzing outcomes from the DFC model for both options - leverage lease and debt financing, it was noted that each option comes with its own advantages and disadvantages.

The cost of leverage-lease debt stands at 220.26M, whereas the debt financing amounts to 260.26M, making the former a more favourable option. One downside, however, is that the equipment acquired through this lease would eventually have to be returned by Amtrak instead of being retained. On the other hand, the benefit of debt financing is that Amtrak can retain ownership of the equipment after repayment. Opting for a lease can generate value by providing convenience through eliminating the need for internal maintenance and freeing up time and resources to focus on other aspects.

The requirement for larger cash flows due to the pressure from debt financing might necessitate Amtrak to sell assets below cost in order to offset increased interest expenses. According to the results derived from CDF models of leverage-lease and debt financing with the assumption of Amtrak's loss-making situation, the leverage-lease emerges as the most advantageous option. This approach will enable Amtrak to receive a $40 million buyout for its equipment at the end of the lease term, making it a less costly and more beneficial option for the company.