ABSTRACT
Adding new pieces of equipment to an operation can mean substantial outlays of capital, and today's rapidly changing technology forces businesses to consider whether leasing or purchasing an item would be more advantageous. This question applies to photocopying machines, fax machines, telephone systems, large pieces of industrial equipment, new warehouses, or offices. To analyze whether to lease or buy, review the projected cash flow statement for both alternatives. If the only consideration is one of cost, then the option with the lower net present value (NPV) (see tip #320) would be the best scenario. The following information or estimations also need review:
Cost of capital (what will the item cost?)
Purchase or financing terms
Useful lifetime of asset for depreciation
Salvage value (can it be sold when its useful life is over?)
Total income tax rate
Leasing conditions
Any additional costs associated with leasing or buying
