Question

a) Provide two reasons for a company to lease some type of capital equipment, rather than buying it. (b) Provide three reasons for a company to buy some capital equipment, rather than lease it.

Answer 1

A)  Two reasons for a company to lease some type of capital equipment, rather than buying it:-

Less initial expense. The primary advantage of leasing business equipment is that it allows you to acquire assets with minimal initial expenditures.Because equipment leases rarely require a down payment, you can obtain the goods you need without significantly affecting your cash flow.

Flexible terms. Leases are usually easier to obtain and have more flexible terms than loans for buying equipment.

B) Three reasons for a company to buy some capital equipment, rather than lease it:-

Ownership. The most obvious advantage of buying business equipment is that you gain ownership of it. This is especially true when the property has a long useful life and is not likely to become technologically outdated in the near future, such as office furniture or farm machinery.

Low overall cost. Purchasing a equipment has low overall cost as leasing an item is almost always more expensive than purchasing it.

Depreciation deduction. You can receive tax savings for almost any business equipment through depreciation deductions.