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Lease Versus Buy Decision

In the lease versus buy decision, leasing is often preferable

a. because it has no effect on the firm's ability to borrow to make other investments.

b. because, generally, no down payment is required, and there are no indirect interest costs.

c. because lease obligations do not affect the firm's risk as seen by investors.

d. because the lessee owns the property at the end of the least term.

e. because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the asset.

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Solution Preview

A lease is a legal obligation to pay for the use of the property of another entity for a specified period of time or upon the happening of a specified event. Lease obligations are disclosed in the notes to the firm's financial statements and are viewed as debts by investors and lenders; thus, answers ...

Solution Summary

This solution discusses the relative advantages of leasing an asset over buying it.