Question

In your firm, what benefits does leasing offer, compared to the purchase of an asset? Provide examples.

Answer 1

There are multiple benefits of leasing the asset rather than purchasing it :

1. Very Low Upfront cost:

When you lease an assets, all you need is the lease payment and some processing fee and you will have the asset which you can start using. But on the other hand, you need to pay whole amount upfront if you want o purchase the asset which sometimes become difficult.

2. Flexiilty in terms of use of money

Even if you have the money to purchase the equipment, leasing provides you the flexibility in terms of spending the money for other purpose. So rather than spending the whole money in single asset, you can use this money in multiple projects

3. Flexibilty in terms of upgrading the asset

Leasing will not give you headache about the obsolescence. This burden is on the owner of the assets. You can anytime lease new and better assets.

4. Tax benefits

Lease payments are usually tax deductible so you will get tax benefits and your effective cost of lease will come down.