If the lessor is in the same tax bracket as the lessee, the cash flows to the lessor are exactly the opposite of the cash flows to the lessee. Thus, the sum of the value of the lease to the lessee plus the value of the lease to the lessor must be zero. Although this suggests that leases can never fly, there are actually at least three good reasons for leasing:

a. Differences in tax brackets between lessor and lessee.

b. Shift of risk bearing to the lessor.

c. Minimization of transaction costs.

We also documented a number of bad reasons for leasing. LO.1