Asked Nov 22, 2019

What are the key advantages and disadvantages of leasing?


Expert Answer

Step 1


Leasing is a contractual agreement between the lessor and lessee for hiring of a particular asset for a particular period of time for a rental payment. In the agreement of leasing the owner of the asset gives right to use a specified asset for a certain period of time to the other party called as lessee.

Step 2

The advantages of leasing is as follows:

Benefit of tax: Based on the type of lease selected the payment might be expensed other than depreciated and capitalized.

No need of initial cash requirement: Leasing offers 100% financing without any requirement of instant down payment.

Low maintenance cost: In case of operating lease, the maintenance of asset is offered by the lessor. Also, in case of agreement of gross lease specialized services are offered by the owner of the asset.

High return of capital: In case of leasing the asset should not include on the asset side of balance sheet. This designates higher rate of return on the capital employed resultant in developed earnings per share.

Balanced flow of capital: The lease cash flow can be balanced by good outlining of rent of lease....

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