Rental car giant Hertz recently
filed for bankruptcy. The bankruptcy is for the rental car company,
while Hertz Vehicle Financing, which owns and finances the purchases of
vehicles, is not included in the bankruptcy. While we will discuss
bankruptcy later in the text, this filing does allow us to show the
difference between book values and market values, a concept that can
cause confusion for students. The 6th full paragraph of an article about the bankruptcy states:
"A
major factor in the timing of the bankruptcy filing was the $389.5
million monthly lease payment that included an additional $135 million
"true-up" payment for difference between the depreciated value compared
to the book depreciated value."
If
you read this carefully, the timing of the bankruptcy was chosen
because Hertz car rental could not make the additional payment of $135
million to account for the difference between the book value and market
value of the cars it leased from Hertz Vehicle Financing. In other
words, the combined market value of the cars leased by Hertz car rental
was $135 million less than book value.
