A Simple Option-Theoretic Approach to the Lease Versus Purchase Decision

Charles Harter, Wm. Steven Smith

Research output: Contribution to journalArticlepeer-review

Abstract

Existing approaches to the financial lease versus purchase decision assume, at least implicitly at the moment of the decision, that purchase entails ownership of the leasable asset over its entire remaining economic life. At any subsequent moment in time, however, if a firm already owns the leasable asset, it can retain long-term use of the asset by deciding to either retain ownership or enter into a sale and leaseback agreement. The purpose of this chapter is to detail the derivation of an innovative, yet intuitive, theoretical approach to analyze a firm's financial lease versus purchase decision in asset markets conducive to future sales and leaseback of owned assets.

Original languageAmerican English
JournalResearch in Finance
Volume27
DOIs
StatePublished - Jan 1 2011

Disciplines

  • Accounting
  • Business

Keywords

  • Finances
  • Financial lease
  • Leasing
  • Purchasing

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