Lease or buy?

by James S. Schallheim

Schallheim begins by exploring the fundamental reasons for considering a lease arrangement over a purchase, noting foremost that equipment leasing provides customized financing with important tax advantages. Beyond this, leases offer savings in financial, transaction, and information costs; valuable options in the contracts; and important risk-shifting opportunities. Schallheim then describes the various types of leases, the tax advantages leases offer, accounting requirements for leases, equivalent loans, the Net Advantage of Leasing analysis, and the Internal Rate of Return analysis. He concludes with the residual-value component of leasing and a section on option pricing. . Numerical examples and exhibits show how the financial models are applied. In addition, summaries of recent academic literature provide a context for the practical information. Invaluable to any analyst or decision maker grappling with this complex decision, Lease or Buy? provides a comprehensive set of tools for