Financial Lease Evaluation Under Conditions of Uncertainty: A Comment.

Abstract This article presents comments of M. Chapman Findlay, III on Harold Wyman's article "Financial Lease Evaluation Under Conditions of Uncertainty," published in the July 1973 issue of the journal "The Accounting Review." The author suggests that it must be borne in mind that the savings on operating costs and the loss of the residual value are included in the cost of leasing model because they represent cash flows which would occur if the asset were owned and, as such, are opportunity costs of leasing. He suggests that the greater the dispersion of operating costs to be absorbed by the lessor or residual value, the greater the risk of owning the asset and, accordingly, the greater the desirability of a lease which would relieve the firm of these risks. He notes that, unfortunately, Wyman's technique attributes these risks to the lease. Thus, if a lease were offered on a piece of equipment with wildly uncertain operating costs and residual value, he suggests that the Wyman model would show the lease to be highly risky.