Purchase Solution

Lease or buy? What is 'capital structure'?

Not what you're looking for?

Ask Custom Question

1. How should you determine whether to lease an asset or buy it outright.

2. What is meant by company's "capital Structure"? Which is the correct one?

Purchase this Solution

Solution Summary

The 678 word solution gives a list of 10 factors which could impact reasons to buy or to lease. There are several paragraphs which discuss types of capital as part of the structure of an entity following by a quoted and cited article containing valuable data on capital structure..

Solution Preview

Whether a company leases or buys an asset is dependent on circumstances. There is no definitive yes-no answer for this question. Some of the factors that could impact the decision are:

1. Is the asset one that will become technologically obsolete in the short term?
2. Is the asset needed for a particular job or product line that may not continue (such as fad products)?
3. Buying the asset and recording debt could change liquidity and profitability ratios substantially and possibly effect banking relations
4. If a publicly traded company, the price of stock could be impacted by new debt.
5. The financing may be too expensive whereas leasing costs are less, leasing might be more expensive than longer term financing.
6. Leasing does not usually require the initial cash outlay that purchasing does.
7. With a true lease, the company will not have to deal with sale or other disposal costs when the usefulness of the asset is done.
8. CPAs can apply capital budgeting techniques which may be a determining factor.
9. Tax consequences should be considered.
10. Leasing can ...

Purchase this Solution


Free BrainMass Quizzes
Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.