1. Magnet Beauty leases all of its stores from the same lessor. They have determined that leasing makes more sense than buying properties. Describe the process that most companies undertake to make lease-versus-buy decisions.

A company attempting to differentiate and decide between lease-versus-buy should first consider how long it plans to have the facility. This is an important point/factor when deciding between the two options because a company may opt to lease a facility, for instance, for a short time if the company is aware that it will move to a new location in the near future whereas a company will be more likely to purchase if the company knows that it will continue business in that location in the future. Another important factor is whether or not the company wishes to own the asset or simply use it for a certain period of time without being responsible for upkeep of the asset. We will see later that there is a distinction between capital and operating leases that touches on this concept. However, with purchasing of the asset there is no option of full ownership; as soon as you buy it you own. A company will also reflect on the concept of tax. If the asset is worth a lot of money then acquisition of this asset will have ramifications on taxable income. If you purchase the asset for instance then there will be less cash in the business therefore less taxable income at the end of the year whereas on the other hand if the asset is leased on an operating lease basis then the company will make payments, considered rental expenses, much less than the purchase price which results in overall more taxable income at the end of the fiscal year. Last but not least, a company must understand the value of the asset and whether or not the asset may be rendered obsolete at the end of its life cycle at the firm. This is important because if the company owns the asset it