...Lease versus Purchase Paper FIN/370 Lease versus Purchase Paper There are many factors to when one is considering buying or leasing equipment, building or automobile. And the most important primary factor is, should one lease or buy? Lease means to rent the equipment, building or automobile with the option to own the property. While purchasing is to own the equipment, automobile or building. One has to consider how long one is keeping the asset of property, and which option fits one’s needs. There are advantages and disadvantages with both options, and it depends on one’s business or life situation and making the right choice to buy or lease in that given situation. Factors Involved According to BizFilings (2012), when an organization is deciding to lease or purchase assets then there are factors to consider. One way to compare the two would be to do a cash-flow analysis. When doing the analysis one should take into consideration the following factors: 1. Terms of the lease 2. The cost of capital 3. Federal income tax rate 4. State income tax rate 5. Purchasing and financing terms 6. The value of the asset as well as the span it is useful 7. Any other expenditures associated with the lease or purchase During the decision making process, it is also important to consider cash flows and the net advantage of leasing or “NAV”. NAV is defined as, “The money that would be saved by leasing an asset instead of buying it, not taking into...
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...Debt Versus Equity Financing ACC/400 May 14, 2012 Debt versus Equity Financing Debt versus equity financing is a critical element in the process of managing a business and also the most challenging decision facing managers who require capital to fund their business operations (Schroeder, Clark, & Cathey, 2005). Debt and equity are the two main sources of capital available to businesses, and each offers both advantages and disadvantages. This paper will compare and contrast lease versus purchase options, examine debt and equity financing, provide examples for each source of financing, and identify which alternative capital structure is more advantageous. Lease vs. Purchase Options: Compare and Contrast In business the decision to lease or purchase is a critical element of strategic management. Equally important is the way in which the asset will be used. Operating leases are most often used by organizations looking for fixed payments with no long-term risk, and a limited useful life of the asset. Capital leases are more aligned with the features of a conventional purchase. Purchasing often requires a higher monetary expenditure at the start, in addition to acquiring the financing to purchase through a lender. Leasing usually requires a lesser amount of cash down, and the monthly payments are often smaller. Additionally, leasing offers tax benefits because the full lease payment can be immediately deducted, whereas purchasing only allows the interest...
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...Debt versus Equity Financing Brenda L. Rochelle ACC/400 November 7, 2011 Carl Mir Debt versus Equity Financing Introduction In this paper, the author will attempt to compare and contrast lease versus purchase options by providing definitions of debt financing and equity financing and providing examples of each. Additionally, the author will attempt to address which alternative capital structure is more advantageous and why. Business owners must decide whether to purchase outright, finance purchases, or through a long-term lease. Full rights of ownership are realized when purchasing outright. Financed purchases lessen control of the asset by the buyer. Restrictions may be placed on the buyer’s right to sell by the lien holder in an installment purchase. In a long-term lease, the lessee lacks the right to sell, except for any purchase options available. An alternative is short-term leasing. This alternative frees the lessee of most risks of ownership, specifically obsolescence and maintenance. Additionally, the rental rate reflects these advantages. Choosing between outright purchase, financed purchase, long-term lease, and short-term leasing, causes management to face operational considerations such as maintenance, obsolescence, and the degree of control. Decisions involving financial considerations are necessary when ownership is selected. Debt Financing Debt financing is borrowed money a company receives in return for a promise to repay the loan. This...
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...Lease Versus Purchase Paper Merita Likins FIN/370 March 9, 2015 Kimber Rueff Lease Versus Purchase Paper The choice to lease or buy is tricky for both the individual and the corporation. One must figure out which is cheaper; leasing or purchasing by borrowing money. Many things must be taken into consideration when determining the lease or buy options. One must consider taxes, depreciation, lease payment amounts, repayment time of the interest and principle, and residual asset value. Based upon these factors one can see by comparison which is the better choice, depending on the situation. An example of this is retailers that rent household items to consumers. It seems like an easy way to have those home furnishings you need without having to pay all that money outright. These firms will rent televisions or washers and dryers to you for a weekly fee. Once you do the math you can see that by renting these items you end up paying more than the present value or future value of the item. For what you pay in interest you may have been able to buy both the television and washer and dryer. On the other hand, if you borrow the money you may end up paying a higher interest rate than renting. To make any informed decision on whether to rent or buy, you must review all the details and do the math. Reference Mayo, H. B. (2012). Basic Finance: An Introduction to Institutions, Investments, and Management (10th ed.). Mason, OH:...
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...Lease Vs Purchase Paper Team B FIN 370 March 12, 2015 Davidson Jansen Lease Vs Purchase Paper Leasing versus purchasing advantages and disadvantages When equipment is leased one of the main advantages is that the equipment is kept up –to-date. For example, if a company lease a car for two years, once the contract is done, the company can lease or buy a newer car with newer technology. Another big advantages for leasing equipment in the business world is the predictability of monthly expenses. A lease comes with a pre-determined monthly line item which is most helpful during the monthly budgeting. One of the biggest disadvantages of leasing is the fact that at the end a company will end up paying more for the product or equipment (Alexander, 2015). When a company purchase equipment the biggest advantage is the availability to deduct the full cost of the equipment on the company’s taxes. Another big advantage is that freedom of maintenance choice. When an equipment is leased the leasing company has a say on how the equipment must be maintain. The biggest disadvantage of purchasing equipment is once the equipment is outdated you are stuck with it (Alexander, 2015). Compare Factors Involved in Leasing and Purchasing Equipment According to Principals and Practices of Public Procurement (2012), it is important to conduct a cost/benefit analysis when determining whether to lease or purchase equipment. Factors to consider when conducing this analysis includes determining...
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...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...
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...April 16, 2013 Todd Brown Phase 1: Capital Shortage Elijah Heart Center (EHC) is a 140 bed facility that specializes in cardiac care, located in New York. It has fallen on hard times even though patient volume and profits are increasing quickly, however the profit margin is falling. The Chief Executive Office of ECH would like to reduce cost by $900,000 in one year. The author of this paper would recommend a few possible way of making this happen. The first step taken was to reduce agency staff personnel. Staffing agencies were created to provide health-care providers with talented health-care professionals to fill their demanding and challenging openings ("White Coat Medical Staffing", 2013). The main reason this was chosen was due to salary. Agency worker’s salaries are often twice that of a regular staff member. This move alone saved ECH over 2.4 million dollars in salaries and benefit for the agency workers. The second cost cutting step was to changing the skill mix; this was achieved by hiring nursing assistants at an average salary of $26,609 a year versus a registered nurse who makes $69,123 ("Salary.com", 2013). This resulted in an overall saving of 1.4 million dollars. So just by adjusting the staff ECH was able to save roughly 3.8 million dollars. In order to fund the changes it was decided that a loan needed to be secured. Loan options were presented and the decision was made to pick loan option number one. This loan was chosen because it...
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...August 2001 Should I Lease or Buy? Steven W. Martin, Fred Cooke, Jr., David Parvin, and Scott Stiles I NTRODUCTION For many farms, machinery expense is the largest single production expense (Massey). Under current farm financial conditions, producers must search every avenue for opportunities to minimize costs and maximize returns. Producers have three basic options for meeting machinery needs: purchase the needed equipment, lease the needed equipment, or custom hire. Custom hire may work well for certain jobs, but often does not allow the amount of control many operations require. Like purchasing, leasing allows the producer to maintain control of the timeliness and quality of the work conducted on his or her farming operation. Therefore producers should evaluate leasing versus purchasing based on the economic opportunities that each provides. OVERVIEW Most leases consist of four basic components: • Periodic payment • Length of lease • Amount of use (hours, miles, etc.) • Residual Under a standard lease agreement, the lessee (farmer) agrees to pay the lessor (bank, credit corporation, dealer, etc.) a specified amount (payment) at certain intervals over a certain length of time. Three-year leases with annual payments are very common, but any arrangement is possible. The lease will generally specify the amount of annual use permitted under the base contract. Tractor leases often range from 300 to 1200 hours of annual use. The amount needed to purchase the equipment at the...
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...University of Phoenix 12 Economic Issues Simulation HCS/440 Lisa Christopher Economic Issues Simulation Paper The simulation review paper will address the summary of my findings of the financial accounting of the Elijah Heart Center Hospital, according to the financial indicators in the simulation: Capital shortage, Funding options for equipment, Funding options for capital expansion, summary and the conclusion. Capital Shortage The cost cutting options I selected was reducing agency staff and changing the skill mix for Elijah Heart Center. The reason why I chose this option is because we can reduce some cost by not hiring so many contracting nurses to save on payroll and increase the unlicensed staff to be used in some areas more than others to save some revenue and not jeopardize the quality of care for the patients first. I picked loan option 1, which the loan is 1.5 million at 9.45% interest rate, monthly installments of 131,490 for 12 months and no prepayment limitation, so we put nothing up front initially (University of Phoenix, 2011). My outcome was making a smaller loan at a higher rate to defray cost while reducing contracting nurses and utilize the unlicensed staff to be diverse in multiple skills in the hospital and not cut quality of the patient’s care at this health facility. Funding Options for Equipment You do not have to buy a new CT scanner because this machine is the least expensive in the hospitals and it can be upgraded if need be for the life...
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...Simulation Review Paper Shunna Billops HCS/457 Marjorie Romano July 25, 2011 The simulation review paper will address the summary of my findings of the financial accounting of the Elijah Heart Center Hospital, according to the financial indicators in the simulation: Capital shortage, Funding options for equipment, Funding options for capital expansion, summary and the conclusion. Capital Shortage The cost cutting options I selected was reducing agency staff and changing the skill mix for Elijah Heart Center. The reason why I chose this option is because we can reduce some cost by not hiring so many contracting nurses to save on payroll and increase the unlicensed staff to be used in some areas more than others to save some revenue and not jeopardize the quality of care for the patients first. I picked loan option 1, which the loan is 1.5 million at 9.45% interest rate, monthly installments of 131,490 for 12 months and no prepayment limitation, so we put nothing up front initially (University of Phoenix, 2011). My outcome was making a smaller loan at a higher rate to defray cost while reducing contracting nurses and utilize the unlicensed staff to be diverse in multiple skills in the hospital and not cut quality of the patient’s care at this health facility. Funding Options for Equipment You do not have to buy a new CT scanner...
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...Debt Versus Equity Financing Paper By Lori Houser ACC 400 Dr Debra Grimm Due September 10, 2012 There are several differences and similarities between leasing versus purchasing. What debt financing is, what equity financing is, and what alternative capital structure is more advantageous will be discussed. Leasing and purchasing can have many differences. Each has their places. Leasing offers 100percent financing, protection against obsolescence, less costly, and can avoid being added to debt on the balance sheet. Leasing allows you to have less money to start out with and not having to put out more money then you may have. Purchasing provides tax benefits, perceived financial advantages. Purchasing also requires having more money at the start. When purchasing you will have to have a bigger down payment then you would need to have if you were to lease. Purchasing may require the monthly payments to be bigger. Though both are different, they can in turn be the same as a company may have the option to purchase later instead of continuing to lease the property. Debt financing is borrowing money from an outside source that will be returned plus the interest agreed upon. Two examples of debt financing are gaining a line of credit from a bank. This gives a company the funds to make purchases. Another example is real estate. The company would need to find a lender that specializes in commercial lending. Equity financing is selling shares of stock in that...
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...Simulation Review Amber Gosney HCS/405 February 11, 2013 Paul Herskovitz Simulation Review This paper provides information regarding a simulation review that was intended to show how a hospital determines revenue and expenditures. The information was based on the Elijah Heart Center (EHC), and all decision was made with careful analysis of EHC employees, along with me. Capital Shortage In the simulation activity I chose two types of cost-cutting options. The first choice was to minimize the amount of agency staff within the facility. Contract laborers require more money for ‘hire’. Typically this higher pay is due to the fact that they are not usually offered ‘in-house’ benefits. Not all agency staffing has to be laid off. Hospital personnel can evaluate which positions are more pertinent, and keep those. Contract laborers are ‘hired’ on with the understanding of being ‘laid-off’ at some point. It is more legit to rid of or lesson those contractors versus those ‘in-house’. Furthermore, contract laborers are not as skilled as those ‘in-house’ laborers who consistently have direct care of patients. The second choice was to change the skill mix. While hiring unlicensed personnel may not be ideal, it would sure save money. Unlicensed personnel do not require as much pay because they are unlicensed, and do not hold as much training or education. Depending on the job duties, unlicensed personnel can be utilized in more than one setting...
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...12-32 Operating Leases: Income Effects of Constructive Capitalization Eugene A. Imhoff, Jr.. Robert C. Lipe and David W. Wright Eugene A. Imhoff, Jr. is Professor at University of Michigan, Robert C. Lipe is Associate Professor at University of Colorado at Boulder and David W. Wright is Associate Professor at University of Michigan. SYNOPSIS: Lease contracts written in 1994 in the U.S. have been estimated at over $140 billion (London Financial Group Ltd. 1996). The amount of leasing activity continues to grow, particularly op erating-type leases which provide a source of off-baiance sheet financing. However, a recent publication by an international group of representatives from the FASB and six other national and international accounting standard setting bodies suggests that iease accounting should require alt lease contracts to be capitalized as assets and liabilities (McGregor 1996). This suggestion has also been made by the Association for Investment Management and Research (AMIR) in a December 1993 white paper. A previous Horizons paper by Imhoff et al. (1991) illustrated how to constructively capitalize operating leases. However, this prior study focused exclusively on the balance sheet effects for a single period, and assumed the income statement effects were negligible. The current study cites evidence that suggests the income statement effects may be material, and illustrates how to estimate the impact of constructive capitalization of operating leases on both operating...
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...Corporate Finance Final Exam Roll # ___________ BBA Program, IBA, DU, 2013 (Provide your answers on the Question Paper) Indicate T (True) or F (False): 1. Capital leases are an alternate source of financing. 2. Term financing is short-term debt, typically used to purchase short-term assets. 3. In a sale and leaseback arrangement, the seller is the lessee and the buyer is the lessor. 4. In an IPO, Private Placement price is higher than Offer Price. 5. The discount rate used to evaluate lease financing versus debt financing is the firm's cost of capital, the only difference is that the cost of capital is adjusted after-tax for leases. 6. Term loan agreements typically contain a prepayment penalty clause, which banks charge if a debtor pays back earlier than scheduled. 7. Empirically, the shareholders of selling companies benefit more in a merger than the shareholders of the buying companies. 8. A tender offer is a public offer by one firm to directly buy from the shareholders, the shares of another firm. 9. Valuations under FCFF and FCFE methods will yield the same result if the Debt:Equity ratio remains constant over the years. 10. Under FCFE, Interest Expense is not subtracted in the Income Statement, since Repayment is subtracted from Cash Flow Statement. Multiple Choice Questions (MCQ): 11. Under Book-Building method of IPO Listing, the price of the shares is: A) equal to the Indicative Price. B) equal to the Offer Price. C) between the Indicative Price (inclusive) and the Offer...
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...A Comparative Analysis of Strategy versus Tactics In the Negotiation Process HR595 Negotiation Skills Instructor: Professor C. Butler June 18, 2011 Sammie L. Brookins drsammiebrookins@aol.com Introduction “Behold, I send you forth as sheep in the midst of wolves: be ye therefore wise as a serpents, and harmless as doves,” Matthew 10:16. This Scripture from the Holy Bible sets the parameters in the negotiation process. It shows the intensities of the parties because sheep and wolves are known enemies. Many times when we enter into the negotiation process, we feel as though we are enemies to the other party. What many of us fail to realize is that we reach many decisions through negotiation every single day without as much as a single thought? Our basic definition for this paper is that “Negotiation means to confer with another person so as to arrive at a settlement of some matter; also to arrange for or bring about such conferences” (Merriam-Webster Dictionary). This paper will focus on the attributes that affect the choice of negotiation strategy, including both short and long-term thinking relative to the consequences, how to frame goals and the importance of the continuing relationship with the other parties involved after the negotiation process has ended. It is common knowledge that negotiation occurs in a series of steps or processes that are conclusive of many contractual principles, many of which are commonplace in daily routine. Offer, acceptance...
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