Tradeoffs Between Leases - Financing Alternatives - Semiconductor Test

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Tradeoffs Between Types of Leases

Different types of leases have tradeoffs from the customer perspective that should be considered to identify which will best fit a company's business strategy.

	Customer Perspective
	Advantages	Disadvantages
Capital Lease	Addresses cash flow issues Relatively inexpensive way to conserve/raise cash Ownership transfers to user	Lacks flexibility User must depreciate asset on books Slightly more expensive than purchase due to interest charge
Operating Lease	Off balance sheet Can improve financial ratios No capital expenditure required Pay only for period of projected need Low payments (compared to Capital Lease of same length)	Do not own asset at end of lease period Monthly expense higher than for direct purchase Upgrades (adding options) may be more difficult Purchase option set at Fair Market Value at time of purchase

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