Certified Professional Public Buyer (CPPB) Practice Test

Which type of lease typically allows for flexibility in asset management?

1. Operating lease

2. Financial lease

3. Long-term lease

4. Short-term lease

The correct answer is: Operating lease

An operating lease typically allows for flexibility in asset management because it is structured in a way that the lessee uses the asset without taking on the risks associated with ownership. In an operating lease, the lessee can return the asset at the end of the lease term without the obligation to purchase it, which provides greater flexibility to upgrade or change assets according to their needs. This is particularly beneficial for businesses that require equipment or machinery for specific projects or periods but do not want the long-term commitment or risk associated with owning the asset. In contrast, a financial lease often includes a purchase option or is designed to amortize the cost of the asset over time, which ties the lessee into a longer commitment to the lease and limits flexibility. Long-term leases, while providing stability, typically lock a lessee into an extended timeframe that may restrict adjustments to asset management strategies. Short-term leases, while flexible in duration, may not provide the same access to essential assets as operating leases do, which could hinder effective asset management in certain operational contexts.