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lease vs. buy worked example
Net Present Value Cost Comparison
| Assets: | Laptops. |
| Cost: | $100,000 assumed aggregate cost. |
| Discount Rate Assumed: 8% | |
| Buy: | Assets purchased in full day 1 |
| Lease: | Assets leased on generic terms assuming 5% market benchmark cost of funds |
| Useful Life: | 36 months |
| NPV Cost: | Shows the NPV of after tax cash flows for the two options using the assumed discount rate. |
Cash-flow Comparison
The cash flow analysis shows the cumulative aggregate net present value of cash flows based on the a 36 month lease term with expenditure undertaken half way through the tax year.
As well as the aggregate benefit of 9.75% shown above, the cash-flow chart demonstrates substantial cash flow benefits in the early stages of lease over and above the net aggregate present value benefit of the term cost of the lease.
Results
Best financial option based on this analysis is LEASE with a net day 1 equivalent saving of $9751 or 9.75% of the original equipment cost.
As with all financial comparisons, the above is a generic demonstration of a lease verses buy. equigroup always prefers to consult with Clients in some detail to consider individual circumstances and fine tune the lease verses buy comparison.
Notes:
Interest rates used are not necessarily those prevailing or available in the future
Comparison assumes usage period of 3 year.
This evaluation is for illustrative purposes only.
Final asset mix may change the rental rates and lease v buy comparison.
The above assumes standard specification assets financed.
Standard of care
The author has exercised all reasonable care in producing this document. However, it does not hold itself as having the skills of a legal, financial or tax advisor. It is for the recipient with its solicitors, accountants or tax advisors, to satisfy all aspects as to any advice or documents provided by us from time to time, including this document. The author shall have no liability in relation to any adverse consequences that result from any advice or documents given. The Recipient acknowledges and accepts the above by reading this document.
