Leasing in an M&M world

M&M assumptions:

1. No taxes
• tax related cash flows go away
2. No contracting costs
• COSTS_b = COSTS_o = COSTS_u = 0
3. Fixed real investment policy (and competitive markets)
• INV_b = INV_o
• SALV_b = SALV_o
• MAINT_b = MAINT_o + MAINT_u
• CFLOW_b = CFLOW_u

Given the M&M assumptions, there is no economic difference between owning an asset and leasing an asset.

Let's look at the no taxes assumption first.