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Impact of leasing on capital budgeting

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In some instances, a company might be able to lease assets at a cost less than the cost the firm would incur if it financed the purchase with a loan. If the equipment represented a significant addition to the lessee's assets, could this affect its overall cost of capital, and thus the capital budgeting decision that preceded the lease analysis? Might this affect capital budgeting decisions related to other assets? Explain.

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The investment decisions of a firm are generally known as the capital budgeting, or capital expenditure decisions. The firm's investment decisions would generally include expansion, acquisition, modernization and replacement of the long-term assets. Sale of a division or business (divestment) is also as an investment decision.

Decisions like the change in the methods of sales distribution, or an advertisement campaign or research and development programs have long-term implications for the firm's expenditures and benefits, and therefore, they should also be evaluated as investment decisions


Leases are contractual arrangements by which the owner of property (the "lessor") allows another person (the "lessee") to use the property for a stated period of time in exchange ...

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This discusses the Impact of leasing on capital budgeting