Principles of Managerial Finance, 15th Edition

17.2 Leasing

1. LG2

Leasing enables the firm to obtain the use of certain fixed assets for which it must make a series of contractual, periodic, tax-deductible payments. The lessee is the receiver of the services of the assets under the lease contract, and the lessor is the owner of the assets. Leasing can take a number of forms.

Types of Leases

The two basic types of leases available to a business are operating leases and financial leases (often called capital leases by accountants).

Operating Leases

An operating lease is normally a contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for 5 or fewer years, to obtain an asset’s services. Such leases are generally cancelable at the option of the ...