A Fair Market Value Lease has a lower payment, why? What are the advantages and disadvantages of a Fair Market Value Lease?
A. A Fair Market Value Lease (FMV) has a lower payment than a $1.00 purchase option lease (when comparing like terms (months)), because there is an equipment residual at the end of the lease. With a $1.00 Purchase Option Lease your company owns the equipment at the end of the lease. An FMV Lease is solicited as a “tax favorable” lease to expense the monthly payment of your equipment. The reality is that a FMV Lease is a customer retention tool used by equipment vendors. At the end of a FMV Lease, your company has several options: Purchase the equipment, return the equipment, or upgrade to new equipment. Your company is forced to make a decision. Returning the equipment is often convoluted, requiring the original operating manuals, sometimes the original shipping carton the equipment came in etc. All equipment damages and missing items are billed to your lease account, as well as a return freight charge (these charges add up fast). Another alternative is to purchase the equipment, howev
