Explore BrainMass

Lease Verses Purchase Options

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

1. Compare and contrast lease verses purchase options.

2. Budget Estimates
William George is the marketing manager at the Crunchy Cookie Company. Each quarter, he is responsible for submitting a sales forecast to be used in the formulation of the company's master budget. George consistently understates the sales forecast because, as he puts it, "I am reprimanded if actual sales are less than I've projected, and I look like a hero if actual sales exceed my projections."
a. What would you do if you were the marketing manager at the Crunchy Cookie Company?
Would you also understate sales projections? Defend your answer.
b. What measures might be taken by the company to discourage the manipulation of sales forecasts?

© BrainMass Inc. brainmass.com March 21, 2019, 3:45 pm ad1c9bdddf

Solution Preview

1. Compare and contrast lease verses purchase options.
A lease is an agreement conveying the right to use property, plant, or equipment usually for a stated period of time. The owner of the property is referred to as the lessor, and the renter is the lessee.
If some body has taken the assets on operating lease than, in it operating lease, the lessor (or owner) transfers only the right to use the property to the lessee. At the end of the lease period, the lessee returns the property to the lessor.

While the most cost-effective alternative is preferred, non-financial factors such as obsolescence and risk need to be considered as part of the buy versus lease decision.

For businesses, capital-leasing property may have significant financial benefits:

1. Leasing is less capital-intensive than purchasing, so if a business has constraints on its capital, it can grow more rapidly by leasing property than it could by purchasing the property outright.

2. Capital assets may fluctuate in value. Leasing shifts risks to the lessor, but if the property market has shown steady growth over time.

3. Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term, because a lessee is not usually obliged to renew a lease at the end of its term.

4. When controlling cash flow is critical and you don't have time to worry about your equipment, leasing can be a great option

5. If the obsolescence risk is high then lease will be preferable.
6. Requires no restriction on a company's financial operations, while loans often do;

7. Spreads payments over a longer period (which means they'll be lower) than loans permit;

Leasing has the further advantage that the leasing firm has acquired considerable knowledge ...

Solution Summary

Over 1000 words compare purchase options and explain whether to understate sales projections in a given situation.