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Lease Vs Purchase Paper

388 words - 2 pages

Lease Vs Purchase Paper
Team B
FIN 370
March 12, 2015
Davidson Jansen

Lease Vs Purchase Paper
Leasing versus purchasing advantages and disadvantages
When equipment is leased one of the main advantages is that the equipment is kept up –to-date. For example, if a company lease a car for two years, once the contract is done, the company can lease or buy a newer car with newer technology. Another big advantages for leasing equipment in the business world is the predictability of monthly expenses. A lease comes with a pre-determined monthly line item which is most helpful during the monthly budgeting. One of the ...view middle of the document...

The biggest disadvantage of purchasing equipment is once the equipment is outdated you are stuck with it (Alexander, 2015).

Compare Factors Involved in Leasing and Purchasing Equipment
According to Principals and Practices of Public Procurement (2012), it is important to conduct a cost/benefit analysis when determining whether to lease or purchase equipment. Factors to consider when conducing this analysis includes determining the discount rate, calculating the net present value, comparing the net present value of other alternatives, total tax-deductible expenses, and tax savings. Other factors include determining the estimated period equipment will be used, how often it will be used within such period, the cumulative rental payments over the entire period of use, the net purchase price, maintenance and service costs, and the availability of funds. It is also important to remember when forecasting costs and benefits to forecast each in today’s monetary value amount, include opportunity costs, leave out sunk costs and non-monetary costs and benefits, and use the expectant value to estimate the uncertain benefits and costs.

Reference
Alexander, P. (2015). Entrepreneur. Retrieved from http://www.entrepreneur.com/article/80230
Principles and Practices of Public Procurement. (2012). Lease-Purchase Decision. Retrieved from http://principlesandpractices.org/wp-content/uploads/2013/04/SOPLease-Purchase.pdf

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