A business may do a net present-value comparison between rental and purchase, and conclude that owning is cheaper. But as we showed above, the cost of cash is usually higher than the debt rate. Cash is a scarce asset on the balance sheet, and a reasonable position is to use the Weighted Average Cost of Capital as the discount factor. Even if a business believes today that the equipment will be kept for a long time, a lot of things can change. A 36-month fair market value (FMV) rental preserves substantial future flexibility at little to no additional cost.
