Friday, January 31, 2020
Lease Versus Purchase Option Essay Example for Free
Lease Versus Purchase Option Essay In this essay I will try to explain or compare and contrast lease versus purchase option. In this explanation I will talk about what is deb financing, and will provide two examples. I will also talk about what is equity financing and provide two examples and last which alternative capital structure is more advantageous and why. In order to give two examples of what is debt financing I will give a brief description of what is debt financing. Debt financing is when a company borrows money that must be repaid but with interest. This does not dilute the ownership of the company. With that being said the two examples are Issue Bonds and Line of Credit. In the line of credit, this is a bank loan where a business can draw out funds whenever money is needed. In issue bonds the business can issue bonds as for of debt financing these bonds are marketable securities. (ehow.com 2013) Now equity financing is according to ychange.com (in equity financing, money is exchanged for a share of ownership in the business). The business in returns raises funds and does not incur in debt. The two types of equity financial is employee stock ownership and private investors. The employee stock is when a company sells stock to the employee. The private investors are possible investor willing to invest their money in the company. Which alternative capital structure is more advantageous? In my opinion and according to the definitions on my e-book I would have to say energetic-middle the reason for this would be because it is more advantageous for small business. It balances the return and risk of capital. After looking at all the definitions and examples, trying to compare and contrast lease vs. buying is not that difficult. This all depends on what do you want and if it is in a companies perspective then one must take into consideration the companies cash flow. For example if a company has lots of cash flow then buying is the option now if it wants to conserve capital for the near term then leasing is the best option. It all depends on what the company need at that particular time.