3.2.4BM20 flashcards

Purchasing versus leasing

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Card 1 of 203.2.4

3.2.4

Question

Define purchasing (as a way of acquiring an asset).

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All 20 Flashcards — Purchasing versus leasing

Card 1definition

Question

Define purchasing (as a way of acquiring an asset).

Answer

Purchasing means buying an asset outright so the business owns it completely.

💡 Hint

Buy outright = own.

Card 2definition

Question

Define leasing (as a way of acquiring an asset).

Answer

Leasing means renting an asset for a set period by making regular payments, without owning it.

💡 Hint

Rent, don’t own.

Card 3example

Question

When is purchasing usually the better option?

Answer

When the business has strong cash reserves and expects to use the asset for a long time.

💡 Hint

Cash + long-term use.

Card 4example

Question

Purchasing means buying an asset outright. State the missing word: ______.

Answer

Outright.

💡 Hint

Own it fully.

Card 5example

Question

When is leasing usually the better option?

Answer

When cash flow is tight, the asset is needed short-term, or technology changes rapidly.

💡 Hint

Tight cash or fast tech.

Card 6example

Question

State one advantage of leasing an asset.

Answer

It avoids a large upfront cost and preserves cash flow through fixed regular payments.

💡 Hint

Preserve cash flow.

Card 7example

Question

State one advantage of purchasing an asset.

Answer

The business owns the asset and can use it long-term and potentially sell it later.

💡 Hint

Own + can resell.

Card 8example

Question

Leasing means renting an asset for regular payments. State the missing word: ______.

Answer

Renting.

💡 Hint

Use but don’t own.

Card 9example

Question

Why might a business lease vehicles rather than purchase them?

Answer

Leasing makes it easier to upgrade vehicles regularly and avoids large upfront payments.

💡 Hint

Upgrade + no big upfront.

Card 10example

Question

Which option usually preserves short-term cash flow better?

Answer

Leasing, because it avoids a large upfront payment.

💡 Hint

No big upfront.

Card 11example

Question

State one disadvantage of leasing an asset.

Answer

It is usually more expensive over time and the business never owns the asset.

💡 Hint

Pay more, no ownership.

Card 12example

Question

State one disadvantage of purchasing an asset.

Answer

It requires a large upfront payment, which can reduce cash flow.

💡 Hint

Big upfront cost.

Card 13example

Question

Leasing is especially suitable for assets that become outdated quickly, such as IT equipment. State the missing word: ______.

Answer

IT.

💡 Hint

Fast-changing tech.

Card 14example

Question

If an asset is needed for a limited time, leasing is often better than purchasing. State the missing word: ______.

Answer

Leasing.

💡 Hint

Short-term need.

Card 15example

Question

Which option is usually cheaper in the long run (if the asset is used for years)?

Answer

Purchasing, because the business owns the asset and can avoid ongoing lease payments.

💡 Hint

Own = cheaper long-run.

Card 16example

Question

Purchased assets appear on the balance sheet. State the missing word: ______.

Answer

Balance.

💡 Hint

Owned assets = balance sheet.

Card 17example

Question

In 6-mark evaluation questions on leasing vs purchasing, what should you compare?

Answer

Compare cost over time, cash-flow impact, flexibility/obsolescence risk, and link your recommendation to the business context.

💡 Hint

Cost + cash flow + flexibility.

Card 18example

Question

Give one reason a business might still purchase technology equipment.

Answer

If it has strong cash flow and expects to use the equipment long-term, purchasing may be cheaper overall.

💡 Hint

Cheaper long-term if stable.

Card 19example

Question

Why can purchasing be cheaper in the long run than leasing?

Answer

Because once the asset is paid for, there are no ongoing lease payments and the business can still sell the asset later.

💡 Hint

No monthly payments later.

Card 20example

Question

Give one reason leasing can reduce risk for a start-up.

Answer

It reduces the cash-flow strain from large purchases and makes budgeting easier with predictable monthly payments.

💡 Hint

Lower upfront strain.

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Topic 3.2 hub

Sources of finance

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