In a perfect capital market,leases neither increase nor decrease firm value,but serve only to divide the firm's cash flows and risks in different ways.

Question

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In a perfect capital market, the value of a firm is determined solely by the present value of its future cash flows, and the form through which those cash flows are distributed to shareholders (whether through leasing or other means) should not affect the overall value of the firm. Instead, the role of leasing is to allocate cash flows and risks between the lessor and lessee in a way that optimizes each party's preferences and constraints.

In a Perfect Capital Market,leases Neither Increase nor Decrease Firm