In a lease arrangement the firm may avoid the cost of

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Unformatted text preview: nt, the firm may avoid the cost of obsolescence if the lessor fails to anticipate accurately the obsolescence of assets and sets the lease payment too low. This is especially true in the case of operating leases, which generally have relatively short lives. 2. A lessee avoids many of the restrictive covenants that are normally included as part of a long-term loan. Requirements with respect to minimum liquidity, subsequent borrowing, cash dividend payments, and so on are not normally found in a lease agreement. 3. In the case of low-cost assets that are infrequently acquired, leasing—especially operating leases—may provide the firm with needed financing flexibility. That is, the firm does not have to arrange other financing for these assets. 4. Sale–leaseback arrangements may permit the firm to increase its liquidity by converting an existing asset into cash, which can then be used as working capital. This can be advantageous for a firm that is short of working capital or in a liquidity bind. 5. Leasing...
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This document was uploaded on 01/19/2014.

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