The most familiar method to readers is probably the UK Actuarial Method, which uses three rates:

To invest in a transaction, the lessor borrows all funds on a recourse basis at the cost-of-funds rate (commonly LIBOR).  In addition, the lessor charges a margin on the investment balance.

If the investment balance switches sign and becomes re-invested, the surplus cash earns interest at the re-investment rate (commonly LIBID).

This is the most popular method used for evaluating lessor returns worldwide.  It is used extensively in the US and Germany, and to a lesser extent in France, Japan and Australia.  This evaluation method uses two rates:

The yield rate is similar to the sum of the UK cost-of-funds rate and margin, and the sinking fund rate is similar to the re-investment rate.  It is common to assume a small sinking fund rate of just a few percent, although in the US a zero rate is used for accounting reasons.  Both yield and sinking fund rates are after-tax so, unlike the UK actuarial method, the pricing analysis does not affect the tax computation.

Leases that are priced using the MISF method tend to be leveraged.  The purchase is financed using a combination of equity and non-recourse debt.  This significantly changes the profile of the investment balance compared with the UK.

In France, a lease pricing technique commonly employed is the tax loan.  The entire purchase is financed using debt, and as there is no equity on which to calculate a yield, the evaluation is based directly on the tax savings generated.

The lessor partnership is comprised of partners who are able to make use of the tax savings created by the lease in the early years.  The tax savings made by the partners are immediately lent to the partnership, creating a tax loan.

As the partners have lent their tax savings back to the partnership, their net cash flow is zero.  However, the partnership pays interest to the partners on the balance of the tax loan.  When the partners have to pay tax, the partnership distributes the required amount (repaying the principal of the tax loan).  Therefore the total net cash flow for the partners is the tax loan interest payments, and the appropriate measure of investor return is the tax loan interest rate.

An increasing number of French transactions now feature equity injections at the beginning of the deal, and typically use the MISF yield as a measure of the return.

In Japan, interest rates are very low and investors tend not to look at returns based on the time value of money.  Instead, investors look more to loss ratios and cash return ratios.

An investor in a Japanese Operating Lease (JOL) makes taxable losses in the early years before making taxable profits.  The loss ratio is the loss divided by the initial investment (equity plus upfront fees).  Investors are interested in the total loss ratio (the total loss divided by investment) and loss ratios calculated over initial periods (for example, the first year loss ratio).  Recent tax changes restrict the loss ratios to be less than 100 percent.

The investor's cash return ratio is also related to the initial investment.  It is the total pre-tax cash (excluding the initial investment) divided by the initial investment.  Thus a cash ratio of 150 percent means that at the end of the lease, on a pre-tax basis, the investor recovers the original investment and makes a profit of 50 percent on it.

A high yield on a small investment for a short time may not be as attractive as a lower yield on a larger investment for a longer time.  Hence the lessor may additionally calculate the Net Present Value (NPV) of its after-tax cash flows (not be confused with the lessee's NPV Benefit).  Other pricing methods exist that look directly at the effect upon the lessor's accounts, and vary from company to company around the world.

The complexity of lease pricing means that many different lease pricing techniques have been developed around the world.  Some methods, such as MISF, have strong similarities with the UK actuarial method, but the others are quite dissimilar.  Despite that, none of the methods are overly complicated and can quite quickly be understood.