Lease Verses Purchase Paper

In: Business and Management

Submitted By lenoraolson
Words 529
Pages 3
Lease Verses Purchase Paper
Jane Jones
FIN/370
February 23, 2015
John Doe

Lease Verses Purchase Paper
When it comes time for a company to make a substantial investment, they are faced with the decision of whether to lease or purchase. Businesses need to take into consideration many factors when they are making these ideal decisions such as; the tax ramifications, time, money and what is best for the growth of the company. It is important to have a financial plan in place that will examine not only the benefits, but also the possible potential losses when making these important decisions.
There are many relevant factors to consider in making a lease versus purchase decision. There are the obvious cash outflows to consider such as rent payments or loan payments and initial outlay. There are repairs and maintenance to factor. There are also tax-deductible expenses such as interest payments, tax savings such as depreciation expense to calculate. Other important factors include the duration that the equipment will be in use, the interest rate for a loan, and residual or salvage value of the equipment. Another factor to consider is the production issues that are based on consumer demands for these new products. Customers’ needs continually change so it is important that the right decisions are made that will meet those needs without affecting the organization in a negative way. Under some circumstances, leasing will be the best option while in other instances purchasing will be the best choice (Mayo, 2012). Firms must calculate all the factors for each situation, to find the best option.
Time Value of Money is crucial in the deciding whether to lease or purchase. Investing proper cash flows in assets, purchases, or other business expenses are crucial business expenditures. Operating revenues and expenses determine the project’s cash flows (Titman, S., Keown,…...

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