Residual Value stands for salvage value but how is it a benefit for the lessor and not the lessee and what does residual value mean here?
The question in context
Which of the following is least likely an advantage to the lessee in a leasing agreement?
- High residual value
- Low down payment required
- Lower financing costs than purchasing the asset
The answer is A
The residual value here probably refers to the remaining value of the asset being leased (a car, real estate, etc.).
The lessor is the owner of that asset (the landlord or car owner).
The lessee is not the owner, they are the ones renting the asset.
Therefore, in your example above, the lessee who is renting the asset from the lessor only cares about how cheaply they can rent the asset. Because this lowers their costs. These costs are operating expenses and affect their EBIT etc.
The landlord/lessor, who actually owns the asset and is renting it to the lessee, will care about maximizing the rent they can charge to the tenant/lessee. And they will also care about what the remaining (residual) value of the property being rented will be, at the end of that lease. Because that residual value still will be their asset.