When is a capital lease a better alternative than an operating lease?
It depends on your business needs. A capital lease allows you to
carry an item on your books as if you own it, so any of the reasons
for ownership would qualify. One good reason for opting for a
capital lease is that at the end of the term, you may purchase the
item for little more than what you've already invested. This is
good, if the equipment is well-maintained and could last well
beyond its useful life. I have to qualify the answer, though,
because I am not sure if you are talking FAS13 definition of
capital lease for financial reporting purposes or what some people
call capital lease under the Internal Revenue Code (also known as
conditional sale).