7.15. (Untitled - hydron_solution

7.15. (Untitled - hydron_solution - Hydron Technologies...

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Hydron Technologies Corporation—Lease or Buy a. A lease is a contractual arrangement where the lessor (who owns the asset) allows the lessee (who does not own the asset) to use or occupy the asset for a specified time in return for rent payments. Leasing may be more advantageous than purchasing when: the lessee needs the asset for only a short time relative to the life of the asset the lessor is in a better position to sell the asset when it is no longer needed the lessee wants to avoid risks associated with technological obsolescence (i.e. the risk of resale prices being unexpectedly low) the lessee wants to avoid risks associated with potential environmental remediation the lessee does not want to report additional assets or liabilities on its balance sheet (i.e., to be able to report higher ROA or to avoid breaking restrictive debt covenants) it is to the lessee’s advantage to deduct rent payments instead of interest and depreciation for tax purposes Of course, the specific details of a given lease agreement can enhance or
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This note was uploaded on 05/04/2008 for the course ACCT 3320 taught by Professor Frankzhang during the Summer '06 term at University of Texas at Dallas, Richardson.

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7.15. (Untitled - hydron_solution - Hydron Technologies...

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