It is important to recognize that the lower cost of

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Unformatted text preview: her results from factors such as the differing tax brackets of the lessor and lessee, different tax treatments of leases versus purchases, and differing risks and borrowing costs for lessor and lessee. Therefore, when making a lease-versus-purchase decision, the firm will find that inexpensive borrowing opportunities, high required lessor returns, and a low risk of obsolescence increase the attractiveness of purchasing. Subjective factors must also be included in the decision-making process. Like most financial decisions, the lease-versus-purchase decision requires some judgment or intuition. Effects of Leasing on Future Financing capitalized lease A financial (capital) lease that has the present value of all its payments included as an asset and corresponding liability on the firm’s balance sheet, as required by Financial Accounting Standards Board (FASB) Standard No. 13. Because leasing is considered a type of financing, it affects the firm’s future financing. Lease payments are shown as a tax-deductible expense on the firm’s income...
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This document was uploaded on 01/19/2014.

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