A Common Question When Making a Capital Budgeting

Introduction

Cash is an asset of business; there is no different compare to inventories and non-current assets (Atrill & McLaney 2011). Why cash is so important to run a business? The reason is stakeholders will not accept things other than cash in financial settlement and claims by running a business. Company owns asset such as manufacturing equipment, property, IT workstation and catering equipment etc as all these will be reflected in financial balance sheet statement

Making a choice from capital budgeting view perspective

Leasing or buying is considered a critical decision-making to a firm. It is realized that some small and medium enterprise (SMES) cash flow is one of the critical assets for them to run or sustain a business (Anne & Scoot & Joseph, 2013). Whilst, firm financial have low cash flow, leasing will be their perfect solution to run the business whereby it could enable the firm without required upfront capital cost outlay impact (Anne & Scoot & Joseph, 2013). Leasing equipment will enable firm to trade-off the rental fees over fixed period of time. Furthermore, when the leasing contract ended, firm will able to have a choice to choose whether continue or end the contract. From budgeting perspective, it will able to have a great extent expressed in flexibility in financial terms such as entitle greater cost to lease a new and high-end equipment, greater 3rd parties service and minimize asset holding values risk (Anne & Scoot & Joseph, 2013). Oftentimes, leasing will helps to prevent assets depreciation and maintenance cost (Westwon, 2013), the contractor firm will respond for the maintenance service cost. Thus, firm will able to grant higher operating profit in lower cost way. For instance, there are many outsourcing contractors, which would able to provide service to the firm such as IT contractor HP. They can tailor end-to-end IT solution whereas assign their employee to manage entire IT lifecycle for a firm (HP,...