There are two parties in any lease contractthe lessee and the lessor. To a lessor, a lease analysis involves a capital budgeting analysis of the property or equipment to be leased. The lessors decision is either to purchase and lease-out the asset, or not make the investment at all. Like any capital budgeting decision, the lessor needs to evaluate the rate of return expected to be earned from making the lease. Further, since the cost and other terms of leases involving high-cost items are negotiated, this rate of return information is also important information for a prospective lessee.

From the following statements, identify the steps involved in lease analysis from a lessors perspective. Check all that apply.

1. Determine periodic cash inflows from the lessee.

2. Determine the invoice price of the leased equipment minus any lease payments made in advance.

3. Check and ensure that the lessors cost of capital is more than the rate of return on the lease.

4. Determine the periodic cash outflow that the lessor owes to the lessee.