...Leasing vs. Purchasing Richard Brown, Katie Martin, Ronald Williams, Dewayne Magee FIN/370 March 30, 2015 Thomas Rietta Lease vs. Purchase To lease… or to purchase… that is the question. Does one choose to bite the bullet and put forth the expense to completely own a piece of equipment, or is paying a company to use said piece of equipment the proper course of action. Webster’s New College Dictionary defines a lease as “a contract by which one party (landlord, or lesser) gives another (tenant, lessee) the use and possession of lands, buildings, property, etc., for a specified time and for fixed payments (Editors of Webster’s New World Dictionary, 2007).” In the scenario outlined in the text, a company had to decide whether or not to lease or purchase a piece of equipment, with a value of $200,000, which will be used over a period of three years. In the following paragraphs we will analyze the potential benefits, or detriments to either leasing or purchasing the equipment. Purchasing If the firm was to purchase the asset for $200,000, uses said asset for three years and then sells the asset for (expectedly) $50,000, there are some advantages; they will be able to write off the cost involved with depreciation and the upkeep (maintenance) of the asset, as there’s a tax savings involved with deducting these costs from the taxable income total. The firm takes out a $200K, 5-year loan at 10% interest to buy the asset; after the sale...
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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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...To Lease or Purchase? May 2, 2011 ACC/400 Peter Ioveno To Lease or Purchase? It is important to know when it is a good time to purchase items or lease items, as an individual and in the business world. If you purchase an item at the wrong time, it could easily put a company as risk for financial hard times. The following will detail some important factors to review when purchasing or leasing is an option. The Differences between Leasing and Purchasing Both leasing and purchasing has its pros and it cons. The trick is to figure out which would be better for a company’s current financial status. Leasing allows a lessee to avoid large down payments, keep updated materials, lower lease payments due to shared tax advantages, and the property that is being leased does not show as an asset or liability. These are all positive factors if your company is a smaller company and does not have the cash to purchase the material or only needs the material for a limited time. Next are a few pros of purchasing through a capital lease. Leasing payments on an operational lease might be higher than those payments on a capital lease due to interest rates and since the company does not own the property, it must not be abused or used to harshly because it will be returned to the lessor. A capital lease gives you tax breaks such as deprecation, while operational leasing does not. As stated above, operational leases (rental agreements) and capital leases (purchasing leases) both have...
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...Leasing vs. Buying a Vehicle The great debate to lease or buy a car? Which one of the two options is the smarter or he better choice? The answer to this question is both and neither are the best options. Confusing one may think so, however, the best way to get to the answer is to ask yourself what is important to you. Every person is different with different values and priorities that determine for them whether leasing or buying is the answer. There are people who desire to drive a new vehicle every few years with little or no maintenance costs. Some people have a strong desire to own the vehicle, as opposed to lower upfront costs with no ownership. One of the two of the biggest temptations for many people to lease verses buying are that the monthly costs to lease are cheaper than the monthly payments to buy a car. The other is that they are able to have a new car every 2-3 years, as opposed to the people who purchase. People who purchase generally hold on to the car for an additional 2 years after the last car payment. Let’s review the pros and cons of leasing. The advantages of leasing are it offers lower monthly payment and the ability to drive a new car with all the new bells and whistles every 2-3 years (ehow). There is a tax benefit of paying lower taxes since the individual is paying the taxes on the monthly payments verses the full value of the car. From the two examples so far it appears that leasing is a great situation, and everyone should lease; once...
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...DRA Assignment 2 – Recreational Properties 1) FRAMING THE DECISION 1.a) Decisions a) He can exercise the option and buy the land. In this case, the possible decisions are: a.1) Sell the land without any development a.2) Develop the land with a development cost of £ 5 million and the sell it for a higher profit b) He can avoid to exercise the option and invest in another investment that will give to him a certain profit. c) Try to negotiate an option extension in order to be able to delay his decisions until the suit is settled and the risk of not getting the lease does not affect his decision anymore. d) For the purpose of this analysis we are assuming that the price of the option will remain constant. Otherwise another possible decision that Anders may make is whether to sell the option to third parties and eventually recover part of his investments. 1.b) Factors of uncertainty a) Legal suit outcome: the payoff of his decision is subject to the outcome of the lawsuit that may not allow the development of land parcels on East side of White Mountain. b) Reputation: the success of his initiative and the consequent return on his investment are conditioned by the popularity that the location will have, as for instance the quality of the snow and of the ski runs. Due to their nature, these are unpredictable factors that Anders cannot control. 1.c) Objective The objective of Recreational Properties is to maximise the payoff coming from this investment as well as minimising...
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...Lease versus Purchase FIN/370 March 30, 2015 Russel Riggs Lease versus Purchase Buy or lease equipment? This question is based and depends on the business “status”, which means that depends on the business capital budget, projections in short/long-term and the necessity of the equipment. Leasing business equipment and tools preserves capital and provide flexibility but may cost you more in the long run, (“NOLO”, 2014). On the other hand, buying equipment means ownerships and tax breaks make buying businesses equipment appealing, but high initial cost mean this option is not for everyone, (“NOLO”, 2014). At the moment to grow a business it will need tools in order to function properly and generate good profits, thus the business must analyze the initial investment that is required, the tax rate and the equipment’s time period of use to do not affect the business finance founds. May the business lease if it is necessary to change constantly the equipment or may the business buy the equipment because it will be until it gets old. Further in this essay we will explain different point of view with its respective example to consider whether to buy or lease. Both leasing and purchasing products has its place, but it is important to determine which path to take for each situation. A lease “permits the firm (lessee) to use the asset without acquiring title, which is retained by the owner (the lessor).”(Titman, Keown & Martin, 2014) Then in order to use the asset the lessee...
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...Lease Versus Purchase Should your company lease or purchase equipment? The answer to this depends on circumstance. Leasing equipment can be a good option for business owners who have limited capital or who need equipment that must be upgraded every few years, while purchasing equipment can be a better option for established businesses or for equipment that has a long usable life, both areas will be compared for a decision. Purchasing Before making the decision to purchase or lease a business needs to evaluate how the equipment will be used and the useful life of the equipment. Purchasing equipment has both pros and cons depending on the circumstances. Equipment of any kinds has maintenance and repairs over the years. One advantage for this company purchasing the equipment is a lower cost of maintenance. Typically the firm is responsible for all maintenance cost associated with the product, but there is options for extended warranties to cover the cost of repairs that need to be made. (Quickbooks.intuit.com, 2014). The firm is able to enter into a maintenance contract with the manufacture of a flat rate of $5000 a year (Titman, Keown, & Martin, 2014). Because leasing does not include maintenance the cost would grow each year as the equipment ages and becomes more prone to problems. A big disadvantage to purchasing equipment is the interest payments associated with the loan. Over the three years the firm will own the piece of equipment their average interest payment will be...
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...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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...LEASE OR FINANCE?? In today’s competitive economy, a vehicle is no longer considered a luxury anymore, but rather a necessity. There are not very many cities in the U.S. where you can live without car. I live in Orlando, Florida and dependable transportation is a mandatory expense. If you want to buy a new car, the cheapest way to buy a car is to pay cash for it. By paying cash you will avoid any finance charges. However, there are not very many people have thirty to fifty thousand dollars to spend on the vehicle. Lease or finance are two main options if you don’t have a lot of cash available to spend on the car. I have chosen the BMW and Infinity dealership to do my analysis. I picked two similar cars form the both dealerships: X5 xDrive35i Sport Activity from BMW and Infiniti FX50 from Infinity dealership. After analyzing financing and leasing options, there is no clear answer on whether to finance or lease a vehicle. It basically all depends on how much money you have, how many miles you drive, how long you want to keep your car for and etc. BMW offers 0.9% APR for 24 month and 3.9% for 25-60 month with $0 down payment to finance the X5 xDrive35i Sport Activity. The price of the vehicle is $57,700. It’s approximately $1,700 per month for 36 months. The lease option is $699 per month for 36 months with $3,000 down payment, $725 acquisition fee, and $4,424 cash is due at signing. The total lease payment is $25,164. At the end of the lease, lessee will be liable for disposition...
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...OWNING -VS- RENTING Principles of Macroeconomics Professor John Weber October 17, 2013 Low mortgage rates and rising apartment rentals all over the country has led some people to dive into homeownership more quickly than originally planned. There are many that are still waiting for the housing market to recover, even with incentives to buy. All rely on the personal financial situation in making this decision. Renting vs. Owning both presents a number of pros and cons: Renting: Pros Cons Flexibilty and free Can’t build equity Terms of lease Restrictions No maintenance and upkeep Approval by owner to paint or remodel Ownership: Pros Cons Build Equity Pay for Maintenance Tax Breaks Illiquid Asset Stability of Mortgage Property Taxes Investment Lose of Value Location Use of your savings for down payment Remodeling as you please Owners insurance is Mandatory However purchasing property can be for many reasons, such as, an investment for flipping, to fix up and resale or to occupy. Maintenance of up keep, roof, windows, snow removal, and credit score is all things to consider for purchasing a home. When purchasing there are many different options row home, single, development all are investments. There are many financial parts that play into the option of purchasing and renting. When buying you must be very aware of purchase costs which are the down payment and closing costs. Yearly...
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...John Smith worked on a case for more than two years and received a lump sum payment of $300,000 for his work plus an additional $25,000 for pre-paid expenses. He wants to know how this money will be treated for tax purposes. John’s company is what is known as an LLC or Limited Liability Company, and for U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity. Since John is the only person in the company, the LLC is treated as a “disregarded entity” for tax purposes, and an individual owner would report the LLC’s income or loss on Schedule C of his individual tax return. According to the IRS, Taxable earned income includes: • Wages, salaries, tips, and other taxable employee pay • Union strike benefits • Long-term disability benefits received prior to minimum retirement age • Net earnings from self-employment • Gross income received as a statutory employee (What is Earned Income?, 2012) According to the IRS description above, John earned a total of $325,000 from the case that would be considered taxable income. The $25,000 is included as income for the expenses that John has incurred over the past two years. However, John will only be able to deduct expenses that occurred during the current year and any prior year expenses should have been deducted in the tax year that they were incurred. If this was not completed, he should amend any previous year’s return to reflect the deductions. This money is reported as income and should be reported...
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...of Trinity Community Hospital’s strategic plan, management intendeds on expanding their Orthopedic service line. The hospital is currently licensed at 150 beds and offers no formal orthopedic services although a few orthopedic surgeons maintain privileges at the hospital. Management has identified that its competition offers strong orthopedic services and are 10 miles or less away from Trinity Community. Most of the orthopedic groups are located close to these hospitals, which makes it convenient to perform procedures at the competition's location. Additionally, several orthopedic practices are planning to expand to offices near Trinity Community. The expansion of services requires Trinity Community Hospital to build, purchase, or lease a 5000 square foot facility for physical therapy. This facility would be in support of the orthopedic services and located adjacent to or on the hospital campus. The expansion of services would have the following five-year targeted outcomes: 1) Quality and Safety •CMS orthopedic indicator set >90th percentile •Pre/post procedure class attendance >75% 2) Service Excellence •Likelihood of recommending >90th percentile •Physician satisfaction >90th percentile 3)Staff Achievement •Orthopedic nursing staff certification >75% •Orthopedic staff retention rate >90% 4)Growth and Profitability •Surgical cases—2100 •Physical therapy visits—6,500 •Margin—$2,171,500 It has been asked to review the strengths...
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...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 portion to be deducted. Debt Financing Debt financing occurs when a business raises money for working capital or capital expenditures by borrowing money from individuals, banks, and financial institutions, and in return for lending the...
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...space for the new orthopedic service line * Having the new orthopedic service line built will allow the hospital to customize their space; location of imaging machines, therapy, diagnostics, inpatient, and outpatient. * Cost is lower than purchasing an expansion property adjacent to campus: $600k versus $700k. * The hospital will own this property and benefit from any appreciation in value of the property. b. Buying space for the new orthopedic service line * The hospital will not have to wait for construction to be completed. * The hospital will own the property and will gain appreciation (equity) value for the building in the long-run. * Interest can be written off on taxes. * With historic low interest rates, purchasing will allow the hospital to own the property while paying a low interest rate on their loan. c. Leasing space for the new orthopedic service line * Low starting cost. “Leasing generally requires less cash down, and the monthly payments are often smaller” (Newman, 2006.). * “There's usually a tax benefit associated with leasing where you get to deduct the full lease payment immediately” (Newman, 2006). * The hospital can test out the new expansion for a short time to make sure that the expansion is what they need. 2....
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...Accounting Recognition and Measurement Agenda for Seminar 1 A. Course introduction 1. Contents overview Seminars 1 to 3 Conceptual Issues Underlying Accounting Recognition and Measurement presented by 2. Assessment components & expectations 3. Administrative matters B. Conceptual overview 1. Purpose of accounting & its role in contracting 2. Concepts of recognition, measurement & disclosure in accounting Low Kin Yew Associate Professor Nanyang Business School Semester 1 2012-13 2 Course Contents Overview Contents 1 Fundamental concepts & issues in accounting Assets: a. Leases b.Investment property c. Financial assets Liabilities: a. Financial liabilities b. Deferred tax liabilities Seminar # 1, 2 & 3 3, 4 & 5 7 8, 9 & 10 Course Contents Overview Contents 4 Equity Revenue a. Revenue recognition principles & criteria b. Customer loyalty programs c. Construction vs. real estate development Expenses a. Expense recognition principles b. Share-based payments transactions & employee stock options c. Employee benefits Seminar # 16 2 5 17 18 19 & 20 3 11 & 12 13, 14 & 15 6 21 21, 22 & 23 23 3 4 Assessment Components Components 1 2 3 4 Seminar participation Group project presentation Term quiz Final exam Total Weighs 15 15 20 50 100 Individual Group (contents: 50%) & individual (presentation 50%) Individual Individual Basis Seminar Participation: Expectations (Project Discovery) Pedagogy • Students take active responsibility...
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