Lease Versus Purchase
Lease versus Purchase
Jacquelin Her, Andrea Sisco, Karina Visloukh, Odis Atkinson, Tyler Menzel, and Lawanda
FIN/370
March 9, 2015
Cindy Bayer
Lease versus Purchase
A company is in need of equipment, but do not have the capital to purchase. So, understanding when to lease verses purchase is a decision companies are constantly faced with. There are many factors that are involved when deciding whether to purchase or lease equipment. Leasing equipment may be more beneficial depending on the project because of the constant cash flow unlike purchasing. The cash flow is not constant, it only increases when the principal amount increases. As an example, the life span of the equipment you purchase is three years. The cash flow will increase as you pay the principle down, although there is another expense you will have to consider such as depreciation and expenditures. If you are considering a shorter-term project you may consider leasing and adjust it to how much you would want to owe back in interest. Interest is a factor in leasing because you do not wish to owe more than what it would it cost if you have made the purchase instead.
When deciding whether to lease or purchase all depends on the individual situation. If a company has limited capital, but requires equipment to fulfill operational needs, it will more than likely be economically feasible to lease the equipment. Purchasing may be costly based off the initial expenditure cost. When leasing, a firm can utilize equipment long after the initial down payment which will result in less weight on cash flow. Lease payments can also become deductible for firms. Leasing can be a reduction in the net cost of a firm 's operations cost. On the other hand, leasing can typically results in higher overall cost.
If your business depends on the ever changing technology then purchasing would not be the best option. A lease leaves a business with the flexibility to change as technology changes. If the asset
Jacquelin Her, Andrea Sisco, Karina Visloukh, Odis Atkinson, Tyler Menzel, and Lawanda
FIN/370
March 9, 2015
Cindy Bayer
Lease versus Purchase
A company is in need of equipment, but do not have the capital to purchase. So, understanding when to lease verses purchase is a decision companies are constantly faced with. There are many factors that are involved when deciding whether to purchase or lease equipment. Leasing equipment may be more beneficial depending on the project because of the constant cash flow unlike purchasing. The cash flow is not constant, it only increases when the principal amount increases. As an example, the life span of the equipment you purchase is three years. The cash flow will increase as you pay the principle down, although there is another expense you will have to consider such as depreciation and expenditures. If you are considering a shorter-term project you may consider leasing and adjust it to how much you would want to owe back in interest. Interest is a factor in leasing because you do not wish to owe more than what it would it cost if you have made the purchase instead.
When deciding whether to lease or purchase all depends on the individual situation. If a company has limited capital, but requires equipment to fulfill operational needs, it will more than likely be economically feasible to lease the equipment. Purchasing may be costly based off the initial expenditure cost. When leasing, a firm can utilize equipment long after the initial down payment which will result in less weight on cash flow. Lease payments can also become deductible for firms. Leasing can be a reduction in the net cost of a firm 's operations cost. On the other hand, leasing can typically results in higher overall cost.
If your business depends on the ever changing technology then purchasing would not be the best option. A lease leaves a business with the flexibility to change as technology changes. If the asset
References: Biz Move Business Guides (2015) Lease versus Buy equipment Decision Retrieved from http://www.bizmove.com/general/m6l.htm IMB Partner World (2015) Financing Retrieved from https://www-304.ibm.com/partnerworld/wps/servlet/ContentHandler/igf_com_fin_itfin_purch