Better Evaluation of a Lease

Abstract

In the October-December 1986 issue, Vikalpa published an article on leasing by I M Pandey who outlined an approach to lease evaluation, treating leasing as functionally equivalent to debt and using the borrowing rate for discounting cashflows.

V Raghunathan argues in this article that treating leasing as functionally equivalent to debt is flawed. He outlines an investment approach to evaluating a lease using the weighted average cost of capital for discounting instead of the borrowing rate. In addition to outlining his approach, Raghunathan comments on the Indian leasing scene and on the myths and realities about leasing.