Asked by Carol Rodgers on Jun 23, 2024
Verified
Jeff owns a new company that is considering either leasing or buying a $100,000 piece of equipment. The lease-buy analysis indicates that buying is better than leasing in Jeff's situation. What factors other than those considered in the lease-buy analysis might lead Jeff to lease rather than buy, in contradiction to the analysis results?
Lease-Buy Analysis
A financial comparison used to decide whether to lease or buy an asset based on cost effectiveness over the asset's useful life.
Equipment
Tangible property used in operations, such as machinery, computers, and tools, which has a useful life beyond a single reporting period.
- Investigate the key financial and managerial strategy considerations involved in the choice between leasing and buying.
Verified Answer
AG
Alexandra GarzaJun 27, 2024
Final Answer :
Student answers will vary. Answers might include some of these key points:
Leasing removes uncertainty.
Leasing increases the external financing resources available.
Leasing places fewer restrictions on a firm than does debt.
This is a newer firm that most likely needs to conserve cash until financial stability is established. Also, being a newer firm increases uncertainty in several areas. The more financial flexibility the firm can retain, the better the firm can respond to unexpected events. Thus, the firm might choose to lease until the firm is established and financially secure.
Leasing removes uncertainty.
Leasing increases the external financing resources available.
Leasing places fewer restrictions on a firm than does debt.
This is a newer firm that most likely needs to conserve cash until financial stability is established. Also, being a newer firm increases uncertainty in several areas. The more financial flexibility the firm can retain, the better the firm can respond to unexpected events. Thus, the firm might choose to lease until the firm is established and financially secure.
Learning Objectives
- Investigate the key financial and managerial strategy considerations involved in the choice between leasing and buying.
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