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 account the cost of capital" (Investopedia, 2014). When a company decides to purchase new equipment, it becomes an asset to the company. The company can include the asset on the balance sheet, which can increase its value. Owning an asset can also generate additional expenses such as cost of maintenance, depreciation, and loan amount if the equipment was financed.

Time Value of Money Time