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than the usable life of the leased assets. Purchase options allowing the lessee to
purchase the leased asset at maturity, typically for a prespecified price, are frequently included in both operating and financial leases.
The lessor can be one of a number of parties. In operating leases, the lessor is
likely to be the manufacturer’s leasing subsidiary or an independent leasing company. Financial leases are frequently handled by independent leasing companies
or by the leasing subsidiaries of large financial institutions such as commercial
banks and life insurance companies. Life insurance companies are especially
active in real estate leasing. Pension funds, like commercial banks, have also been
increasing their leasing activities. The Lease-versus-Purchase Decision
The decision facing firms
needing to acquire new fixed
assets: whether to lease the
assets or to purchase them, using
borrowed funds or available
liquid resources. Hint Although, for clarity,
the approach demonstrated
here compares the present
values of the cash flows for the
lease and the purchase, a more
direct approach wou...
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- Fall '13