Having recently graduated you are employed as a trainee accountant in the finance
department of a large organisation. The Director of Finance has asked for a report
considering asset investment decisions and capital rationing: the company is considering a
major capital investment decision, a replacement of its fleet vehicles and the DOF wants
to see any advantages of purchasing over leasing capital assets by the organisation in the
environment of risk and uncertainty caused by Brexit.
Requirement: Write a report using examples considering the evaluation of the choice
between borrowing to purchase and leasing an asset. Your report should consider the
following aspects of investment appraisal. How might the before and after tax costs of
debt affect the debt decision? How might the decision be considered in an environment
where capital availability is limited? What factors should be considered in making a capital
investment in an environment of risk and uncertainty?
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