Would higher residual value risk make a company more or less likely to lease an asset?...

Would higher residual value risk make a company more or less likely to lease an asset? Why?

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Residual value is defined as the value that a tangible asset is expected to realize on sale or disposition at the end of its useful life. Residual value risk is defined as the possibility that the leased asset would be resold or re-leased at a price that is less than its residual value. This risk equals the difference in residual value of the leased asset & the lower salvage value that is realized upon disposal or re-lease at the end of the term & is usually borne by the lessor.

As the economics of the lease depend on the leased asset’s residual value in addition to other sources of repayment, it is leasing that exposes the lessors to more residual value risk than any other types of lending.

Hence the company which leases its asset to its clients has to bear the residual value risk. Therefore it can be concluded that a higher residual value risk may make a company less likely to lease an asset to its clients.

jeff jeffy answered 9 months ago

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