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Types & Components of Lease & Capital Structure

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1. What are some of the various lease options? When would you use one option over the others? What could be the financial impact of this decision?

2. What are the components of the capital structure? What are the differences of these components?

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The response addresses the queries posted in 809 words with references.
//Before writing about the Components of Capital Structure, it is essential to have knowledge about the 'Types of Lease'. One should know about the conditions in which, a person can use one lease option over other lease option.//

Types of Lease

A lease is a contractual agreement in which, two parties are involved. In a lease agreement, a party owner of the assets provides them for use to another person, who is known as the user or lessee. It is a tool to finance the cost of assets. Lease option can be classified in to the following types -

I. Finance lease - In a finance lease, all risks and rewards are transferred to the lessee. It includes rental payment over an obligatory non-cancelable lease period. The lessee is responsible for all the taxes and the maintenance & insurance of the assets. The provider of assets works as a financier for the lessee.

II. Operating lease - In this type of lease, the lessor doesn't transfer all the risks and rewards to the lessee. The lessor is responsible for maintaining, repairing and providing technical advices for the assets in a lease agreement. The lease period is generally shorter than the economic life of the assets.

III. Capital lease - In a capital lease, the ownership is transferred from the lessor to the lessee at the end of the lease term. The lease term is estimated to be 75% of the economic life of the assets. In this lease, the total ...

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