nitoha

where does it read equity remains the same? dont have my books with me but i want to review this later, too.

NI is lower with a finance lease compared to an operating lease in the early years of the lease because (Depreciation+Interest) > lease PMT. you are absolutely right that equity should also bne lower when NI and thus retained earnings are lower.

but this does not mean that you cannot proove that RoE is lower in earlier years. let's say NI=0.5 and E=1, then RoE=0.5/1=50%
NOW, suppose that because of lower NI, RE and thus E is reduced equally by 0.1 --> RoE=.4/.9=44.44% < 50%.

what do you think?
cheers