Leasing equipment can be more expensive due to what factors?

Leasing equipment can be more expensive due to what factors?

• A. Interest and down payment costs
• B. Higher upfront costs and depreciation
• C. Interest and depreciation on equipment
• D. Maintenance and insurance costs

Answer: (C)

Leasing equipment can indeed be more expensive due to the interest and depreciation on the equipment. When a company leases equipment, they are typically paying for the use of the asset over time rather than purchasing it outright. The leasing company often factors in the cost of borrowing (interest) to create the lease agreement, which is included in the lease payments. Additionally, even though the leasing company retains ownership of the equipment, they must consider depreciation, as the value of the asset declines over time. This depreciation impacts the overall cost structure of the lease, as it may influence the residual value of the equipment at the end of the lease term. As a result, both interest and depreciation contribute to the overall costs associated with leasing equipment, making this option the most accurate explanation for why leasing may be more expensive in certain circumstances.

Leasing equipment can indeed be more expensive due to the interest and depreciation on the equipment. When a company leases equipment, they are typically paying for the use of the asset over time rather than purchasing it outright. The leasing company often factors in the cost of borrowing (interest) to create the lease agreement, which is included in the lease payments.

Additionally, even though the leasing company retains ownership of the equipment, they must consider depreciation, as the value of the asset declines over time. This depreciation impacts the overall cost structure of the lease, as it may influence the residual value of the equipment at the end of the lease term. As a result, both interest and depreciation contribute to the overall costs associated with leasing equipment, making this option the most accurate explanation for why leasing may be more expensive in certain circumstances.