115 CFA
File: Financial Analysis - Reading 28 - 6. Advantages of Leasing

6. Advantages of Leasing

f. explain motivations for leasing assets instead of purchasing them;

What is the primary advantage of leasing (vs buying)?
Using leases, a firm can avoid tying up too much capital in fixed asset investment.

What are tax incentives for a lessor that is in a high tax bracket?
The lessor can gain tax advantages by owning an asset and leasing it such as accelerated depreciation methods.

Why would a company interested in lower leverage ratios want to lease vs own?
An operating lease results in lower leverage ratios and higher asset turnover ratios.

  • CFA