Financial Lease Evaluation Under Conditions of Uncertainty: A Reply.

Abstract This article presents response from the author to comments on his article "Financial Lease Evaluation Under Conditions of Uncertainty," published in the July 1973 issue of the journal "The Accounting Review." It is a generally accepted financial practice to separate the investment decision from the financing decision and not to attribute the cost of a particular financing instrument to a particular project. Lease analysis usually starts with the viewpoint that the asset to be leased has already been accepted as a desirable investment, this follows from the precept that investing should be separated from financing. The method the author had proposed in his article followed this practice and treated leasing as a financial decision, measurable by an interest rate implicit in the lease. The model is correct and consistent with the way financing decisions are measured. There are problems in using the model which stem from considering lease analysis as a purely financing decision, and there are also problems in considering leasing as an investment decision.