Glossary of Common Leasing Terms

Net Present Value (NPV)

The arithmetic sum of discounted cash inflows and outflows. 90 Percent Test: A test of whether 90 percent or more of the fair market value of the leased equipment, at lease inception. will be recovered through the present valuation of minimum lease payments using the lessee's incremental borrowing rate (unless the lessor's implicit lease rate is known and is lower). This test, along with others contained in "FASB 13". is used to determine whether the lease will be characterized as a capital lease or an operating lease for lessee's financial accounting purposes