Question

In your firm, what benefits does leasing offer, compared to the purchase of an asset? Provide examples. 300 Words please provide an example (company)

Answer 1

The benefits of leasing are :

I work in Google, and Google always prefers leasing rather outright purchase of it's assets.

• There is less costs involved in making an outright purchase of equipment, so leasing is a cost effective in a way of making a purchase. For example, if i have to purchase an equipment outright, i need to pay $50,00,000 for the purchase. In case of leasing i would just need to pay $50,000 as the lease payments plus a minimum deposit. So,comparing the costs differences between the two options. Leasing is preferable. The burden of lease payments is spread over a period of time, and so it helps preserve cash.
• The lease payments reduce the taxes as business expenses help reduce tax expenses and provides a tax shield. lease payments are 100% tax deductible as an operational expense.
• The terms in a leasing agreement are more flexible than the terms in a contract for the purchase of an equipment.
• It is easier to upgrade an equipment under a leasing contract. If an equipment is under a lease contract, then the burden of obsolescence  falls on the shoulder of the lessor. So, the onus of the upkeep of the equipment is passed on to the owner of the equipment.
• Rarely does leasing an equipment require a down payment, so leasing does not affect the cash flow of the business either.
• Lease payments are fixed as such they also provide a protection against inflation and does not increase with an increase in the interest rates.
• Lease being an off- balance sheet item, helps keeping debts outside of the balance sheet and increases the borrowing capacity of the business.
• Lease provides the needed flexibility to the business, the lenght of the lease agreement provides the flexibility to decide the monthly payments that  can fit into our monthly budget .