Evaluating Lease Alternatives
As the new vice president for consumer products at Acme Manufacturing, you are attending a meeting to discuss a serious problem associated with delivering merchandise to customers. Bob Smith, director of logistics, summarized the problem: “It’s easy to understand, we just don’t have enough delivery trucks given our recent growth.” Barb Bader from the accounting department responded: “Maybe it’s easy to understand but it’s impossible to do anything. Because of Wall Street’s concern about the amount of debt on our balance sheet, we’re under a freeze and can’t borrow money to acquire new assets. There’s nothing we can do.”
On the way back to your office after the meeting, your assistant offers a suggestion: “Why don’t we just lease the trucks we need? That way we can get the assets we want without having to record a liability on the balance sheet.”
How would you respond to this suggestion?
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