Initial question: Compare and contrast two types of leases and describe the advantages and disadvantages of each. Which type of lease would produce the lowest risk?
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Respond to this: There are two form of leases that involve the Finance/Capital and the Operating lease. In considering the Operating lease, it is a lease in which the ownership lies with the lessor and is able to reap the advantages of the tenant. This approach is the most common type of lease that is being broadly applied. When considering the capital and finance lease, this lease consists of the ownership of the asset being transported to the lessee, and therefore holds actual ownership of the asset in the proper course of time. In distinguishing the difference between both types of leases in the operating lease in regard to ownership involve when the property is not being transported by the lessor to the lessee. However, in the capital lease, the ownership of the property could be transported from the lessor to the lessee in the ending of the lease period. In the Operating lease the risks lie with the lessor and in the capital lease the risk lies with the lessee. The advantages that are involved with these two types lease include that in the operating lease it is beneficial for organization that are in need to replace their asset in a frequently manner, and the lessees are protected from the risk of depreciation, and the wear and tear to the asset or building. In considering the capital and finance lease the advantages it holds is the lessees could claim depreciation on the leased asset and could claim interest expense abstraction for the amount. In the case of going for high tech form of assets, it is recommended to go for the operating lease in the place of one going for asset, in the case of obtaining long duration it is recommended to go for capital lease. (Brigham, E. F., & Ehrhardt, M. C. 2017).
Brigham, E. F., & Ehrhardt, M. C. (2017). Financial management: Theory and practice (15th ed.). Mason, OH: South-Western