* A leveraged lease is a lease with financing linked directly to the lease. Such a linkage of one financing instrument to another is analogous to the link between investment and financing that occurs in lease vs. buy analysis. It is well recognized in the lease vs. buy literature that the linked financing's impact on debt capacity must be included in the cash flows. Myers, Dill and Bautista [3] have developed a procedure that solves for these debt capacity effects in lease vs. buy analysis. Analysis of leveraged leasing usually does not consider the linked financing's impact on debt capacity but implicitly assumes that the impact is zero. It is argued here that the impact is not zero, and, by assuming that it is, the usual analysis of leveraged leasing produces an upward bias in the estimate of the lessor's return.