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Unformatted text preview: o Residual risk is borne by lessor o Especially new/small companies want to cut down risk large firms are capable of bearing the risk o Transaction costs o Costs of changing ownership are generally greater than the costs of writing a lease agreement o But also generates agency costs overuse the asset (monitoring) o Bad reasons for leasing o Leasing and accounting income o Boosts ROA as in the first year dep +interest >lease payments ++ and less assets o One-hundred-percent financing o Leases do not permit a greater level of total liabilities o Other reasons o Leasing may be used to circumvent capital-expenditure control systems o Firm and asset characteristics are important in the lease-or-buy decision o The more sensitive the value of the asset is to use and maintenance buy o Price discrimination may be a way to circumvent laws...
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- Spring '09