Optimal Financial Structure, Cost of Capital, and the Lease‐or‐Buy Decision

Abstract

This note comments on the doubtful application of an economic concept of personal income to the non‐personal business enterprise situation.This paper presents a series of models which we believe properly reflect the relevant relationships in the lease or buy evaluation. The models present the proper cash flow variables for such an analysis and they present the impact on asset net present value of cost of capital and market risk assessment. Finally, the models reflect the simultaneous effect on asset and financial structure of the acceptance of a particular investment opportunity.