Economic life (Useful life): The period of time during which leased equipment is useful and maintains value.
Fair market purchase option: An option to purchase leased equipment at the end of the lease term at its prevailing fair market value.
Finance lease: A finance lease is a full-payout, noncancelable agreement in which the lessee is responsible for maintenance, taxes and insurance.
Operating lease: Any lease that is not a capital lease. This is generally used for a short-term equipment lease. The lessee can acquire equipment for a fraction of its useful life. Additional services such as maintenance and insurance may be provided by the lessor.
Present value: The current equivalent value of payments or the stream of future payments. The present value will vary with interest rates applied to future payments.
Purchase option: A provision in which a lessee has the right to purchase the equipment at the end of the lease for a specified amount or fair market value.
Source: Equipment Leasing Association
