Analyzing Lease vs. Buy Decisions

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Date Submitted: 01/19/2013 11:34 AM

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Analyzing Lease vs. Buy Decisions


A lease is an agreement in which one party gains a long-term rental agreement, and the other party receives a form of secured long-term debt. This paper will reflect upon the arduous decision that arises within organization to choose either to lease or buy asset(s) or (items).


Based out of Irvine, Ca Bonnesant`e Research is a company faced with the choice of either leasing or buying. The organization must choose if leasing a mainframe compute which will depreciate in five years, on an operating lease is more feasible than purchasing the machine. It is recommended that the mainframe computer be leased rather than purchased as leasing the asset will allow the company save a significant amount of money.

Bonnasant`e Research must choose between an operating lease, a capital lease, and buying a $2,000,000.00 digital spectrometer for R & D that will be depreciated over 5 years. Purchasing the equipment is a much better option than leasing as the benefit of purchasing will be the lowering of taxes.

The organization of Bonnasant`e Research has deemed it feasible to expand into manufacturing and is now faced with the dilemma of choosing to capital lease or purchase the manufacturing facility. It is recommended that the facility be purchased with a sale and lease back option to solve the cash flow problem.

Risk & Uncertainties

The risk and uncertainties that should be considered when choosing to decide between leasing and buying should greatly influence the final decision. The risk and uncertainties involved include the net present value of payments to made, the total amount money for the asset or item, interest rates, condition of the asset(s) or item(s), the impact of the asset(s) or item(s) on the balance sheet and cash flows, and the length of time the asset or item will prove useful.