In regards to my reply to the question below, would you agree or disagree with my statement? Why?

Compare and contrast two types of leases and describe the advantages and disadvantages of each. Which type of lease would produce the lowest risk?

There are two types of leases and each one has advantages and disadvantages. The first kind of lease is called a finance lease and the other one is known as an operating lease. This first lease must meet at least one of the following four requirements to be classified as such: the lessee (or the group that is leasing the property) gets to have official ownership of the asset that was leased when the term of the lease expires, the lessee may buy the asset at a cost that is not high at all when the lease expires, the life of the lease must be 75% of the economic life of the asset, or lease payments at present value must be more than 90% of the fair value of the asset (or equal to 90% exactly). There is no maintenance service with finance leases (Brigham & Ehrhardt, 2020). In addition, there is no way to cancel a finance lease whatsoever and because the residual value is not guaranteed, finance leases are completely amortized (Brigham & Ehrhardt, 2020). With the finance lease, the lessee has the ability to renew the lease once it has expired for a much lower rate than before. On the other hand, there is no option for cancellation of the basic lease. In fact, the only way this can possibly occur is if the lessor receives the entire payment that is due to him or her. Finally, there are taxes involved with this lease that the lessee must pay including property taxes and leased property insurance.

With the operating lease, things are a little different. For instance, the operating lease puts the lessor at a disadvantage because he or she must uphold the promise of maintaining all leased equipment without question and also service the equipment. On the flip side, the advantage to this is that the lessor gets paid for this service as part of the lease payments as stated per contract. To add to this, the life of the operating lease is shorter than the asset's expected economic life and so the lessor may never get back all the payments that are needed to recover the original entire/complete cost of the asset. Though there are other ways to go around the problem at the disposal of the lessor including selling the asset. The cancelation clause that comes with the operating lease represents a great deal of power to the lessee. With this clause, the lessee within his or her right to end the lease and return the asset as long as the basic lease agreement has not gone past the official expiration date. Because of this cancelation clause, it can be said that the operating lease provides for the most flexibility and least amount of risk among the two types of leases (Brigham & Ehrhardt, 2020).