Asset-based Financing

Question 1

Why lease when you can purchase? Advantages

Answer 1

Less cash investment - frees up working capital
Less restrictive than debt financing
Fewer risks of asset obsolescence

Question 2

Disadvantages of leases?

Answer 2

Fixed Payments monthly required
Long-term payment required
Impact of existing covenants based on nature of the lease

Question 3

What is Cost of Purchase vs, Cost of lease

Answer 3

PV of lease, with PMT = PMT(1-TAX)
vs.
Cost - PV of Tax shield