Lease vs buy : clarifying the impact of tax and borrowing rates
Purpose: The purpose of this paper is to survey the lease vs buy coverage in leading managerial finance textbooks and to clarify the impact of tax rates and borrowing rates. Design/methodology/approach: The survey uses “plain vanilla” lease vs buy scenarios to critique and clarify particular issues in the textbook presentations. Findings: The survey finds: a lone text shows that there can be a gain from leasing if the lessee’s tax rate is higher than the lessor’s, which challenges the “conventional wisdom” maintained in all the other texts; some textbook examples attribute an overall benefit to leasing to the tax rate difference, but the benefit is actually due to a borrowing rate difference, and borrowing rate differences may be a more important source of leasing benefits than tax rate differences. Originality/value: The survey provides insights that are not well known and should be useful to instructors and practitioners.
Year of publication: |
2019
|
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Authors: | Musumeci, Jim ; O’Brien, Thomas |
Published in: |
Managerial Finance. - Emerald, ISSN 0307-4358, ZDB-ID 2047612-7. - Vol. 45.2019, 5 (13.05.), p. 686-696
|
Publisher: |
Emerald |
Saved in:
Online Resource
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