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Leases and Lease Types 874

Leasing versus Buying 874 Operating Leases 875 Financial Leases 875 Tax-Oriented Leases 876 Leveraged Leases 876 Sale and Leaseback Agreements 876

Accounting and Leasing 876 Taxes, the IRS, and Leases 878 The Cash Flows from Leasing 879

The Incremental Cash Flows 879 A Note on Taxes 881 Lease or Buy? 881 A Preliminary Analysis 881 Three Potential Pitfalls 882 NPV Analysis 882

A Misconception 882

26.6 A Leasing Paradox 884

26.7 Reasons for Leasing 885

Good Reasons for Leasing 886 Tax Advantages 886 A Reduction of Uncertainty 887 Lower Transactions Costs 887 Fewer Restrictions and Security Requirements Dubious Reasons for Leasing 887 Leasing and Accounting Income 887 100 Percent Financing 888 Low Cost 888 Other Reasons for Leasing 888

26.8 Summary and Conclusions 889

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