Answer to Question #202103 in Management for zile

Question

Examine the reasons why your farming company would prefer the leasing options instead of purchasing its own capital equipment

Answer 1

Advantages of Leasing Over Buying

Cost

Leasing of farm equipment would come at a much cheaper price to the farming company as it does not require any down payment. Monthly payments for leasing farm equipment are also lower since the farm would only be paying for the use of the farm machinery for the period of the lease and does not fully absorb the depreciation cost that comes with buying.

Tax Offset

The farming company will be deducting the cost of leasing farm machinery and treating it as an allowable deduction in their tax returns and therefore reducing the tax obligation of the farming company.

Flexibility

Leasing of farm equipment would be better for the farming company since leases are easier to obtain as compared to bank loans and it would also work in the farming company’s advantage especially if they have bad credit score with financial institutions such as and also when they want to renegotiate for a longer payment plan in order for the farming company to lower their operating costs.

 Avoids obsolescence

Leasing with help the farming company to avoid obsolescence of machines as they can simply hire more new and higher end farming equipment. Leasing bequeaths the farming company from being having outdated and obsolete machines as compared to when they would have bought them (Wang et al, 2020).

References

Wang, Y. and Richardson, D.S., 2020. To buy or to lease: The advantages and costs of leasing versus buying scientific instruments for academic core facilities. EMBO reports, 21(5), p.e49971.