Fin370 Week 4

Week 4 Group Lease Vs. Purchase Paper

FIN/370

Week 4 Group Lease Vs. Purchase Paper

In this paper a simulation scenario will be discussed in order to understand the decision between lease and purchase. In everyday cases, many individuals often come across the same question. Answers should be based upon convenience, long term or short term as well as options available. Especially when it comes to business, there is no need to rush to make a choice. During the simulation it will be discussed the process in which a company has to make a purchase choice based on assets, any liabilities involved as well as the need versus luxury. The other option to lease would involve contracts, high payments, no property claim on the object as well as many other charges excluding maintenance which should be provided by leasing company. Today we will explore both scenarios and thoroughly review the choices and how each will impact the company differently from one another.

Before a decision regarding the purchase of capital equipment is made, you may want to analyze the costs of a lease versus a purchase through a discounted cash flow analysis. This analysis compares the cost of each alternative by thinking about the timing of the payments, the interest rate on a loan, the lease rate and other financial arrangements. To make the analysis, you must first make certain assumptions about the economic life of the equipment, salvage value and depreciation. To evaluate a lease, you should first find the net cash in each year of the lease term. You find these amounts by subtracting the tax savings from the lease payment (Missouri Business 2014). This calculation gives you the net cash each year of the lease. Each year’s net cash should be discounted to take into account the time value of money. This discounting gives you the present value of each of the amounts. Leasing would be a better idea to do for short term project and long term projects a purchase would work better.

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