-71-
of the equipment's cost. But, in fact, the equipment's residual
values generally exceeded the amounts projected.41
FIA converted the equipment's residual value into cash at the
end of the lease in a number of ways: Sale or renewal of the
lease to the original lessee; sale or lease to another, generally
smaller, hospital; or return of the equipment to the manufacturer
as a trade-in. FIA's experience was that 85 to 90 percent of the
equipment was purchased or released by the original lessee. In
this regard, approximately 70 to 80 percent of the leases were
renewed, which was more profitable for FIA than a sale of the
equipment to the original lessee or a sale or lease to another
hospital.
The amount of revenue that FIA could earn after the lease
expiration depended largely on the residual value of the
equipment. The residual value of the equipment was the source for
over two-thirds of FIA's cash-flow before expenses and represented
the principal source of FIA's profit. Thus, the equipment's
residual value was the key to FIA's business.
B. Federal's Acquisition of FIA
Commercial Federal Corp. (Federal), the holding company of
Commercial Federal Savings & Loan Association (CFSLA), was one of
41 Through Dec. 31, 1987, FIA achieved gains of 29 percent
over book residual values.
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