Lease versus Purchase [LO2] Why wouldn’t China Southern purchase the planes if they were

Lease versus Purchase [LO2] Why wouldn’t China Southern purchase the planes if they were

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July 22, 2022
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Lease versus Purchase [LO2] Why wouldn’t China Southern purchase the planes if they were obviously needed for the company’s operations?

Answer and ExplanationSolution by a verified expert

Here is a tip:
Consider the advantages of leasing from the lessee's point of view.

Explanation
The following are the reasons why company C decided to lease the planes rather than buying them:

Financial position: Company C decides to lease planes as it does not want the financial burden of buying them.
Tax benefits: The company can avail tax deductions by leasing the planes.
After-tax cost: Leasing the planes is the best option as it is the lowest after-tax cost to the company.
Borrowing capacity: Presumably, the company does not have the credit strength to borrow and buy the planes.
Verified Answer
The following are the reasons why company C decided to lease the planes rather than buying them:

Financial position
Tax benefits
After-tax cost
Borrowing capacity

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