Acc 400 Debt Versus Equity Financing Paper Week 5

Debt versus Equity Financing Paper

This paper is to provide a comparison and identify differences on the options between lease and purchase. Also, it is required to provide definition and examples for debt and equity financing and identify which alternative of capital structure is more advantageous (University of Phoenix, 2014). As a company owner, it is imperative to understand when is necessary to own or lease an equipment or property.

A leasing is a contractual settlement made by a tenant with a lessor to temporarily rent an equipment or property and providing the lessor the use of the asset for a period of time. Leasing advantages of an asset are that provides 100% of financing, protection against obsolescence, it is usually cost are cheaper than acquiring it, and it is not considered a debt for the balance sheet. The lessee has the right to use the asset but not the property rights until purchase. Depending on the type of business, leasing is a great option and cost effective because asset can be change in a periodical time an always has a new or better condition equipment or asset.

Contrary to lease, the purchasing equipment or land will reduce the cash but company will gain an asset. However, in the example of purchasing equipment or machinery, company need to guarantee maintenance supply, materials, parts and/or a mechanical expert on fixing the asset. When the lessor buys the equipment or land is when it becomes in-substance property rights or asset to the company.

Visualizing a construction company that uses lots of heavy equipment, but this equipment is not use commonly. On the other side they may need a specific type of excavator, a cutter crusher or a power plant, but it will be needed just one. The company can consider leasing it instead owing it. The cost of this equipment is too high that having it seated in a patio without use, equipment deteriorates and maintenance is more expensive than lease it for a short period of time....