Cost Analysis of Leasing versus Buying Equipment for business use

If you need equipment for only a couple of months you will probably rent or lease it. If you need equipment for 5 years you will probably buy it. However, in between, there is a time when decision between leasing and buying is not that obvious.

If you need assets for your business this Lease versus Buy analysis will help you to evaluate and compare cost of buying to cost of leasing. The analysis will tell you what is cheaper: to buy or to lease.

You will have clear step-by-step instructions where and what requires your input.

The only way to choose between leasing and buying options is on the basis of cost. We need to compute Net Present Value of both. However, if you are planning to own equipment longer than you are planning to lease it, you cannot compare two options only on a basis of Net Present Value. Net Present Value of leasing in this case would be lower (better) than that of owing. However, leasing option is not necessary better, because lease will have to be replaced earlier. In order to compare leasing to owing in this case, Net Present Value will be converted to Equivalent annual cost. Then, we can compare both.

Lease versus Buy PRODUCT INCLUDES:

1. Option 1 - Analysis of owing equipment evaluates:

- Initial investment by categories;

- Annual operating expenses associated with owing equipment;

- Calculating tax shield;

- Depreciation and depreciation tax shield;

- Salvage value;

- NPV (net present value);

- Equivalent Annual Cost



2. Option 2 - Analysis of leasing equipment evaluates:

- Annual operating expenses associated with leasing equipment;

- NPV (net present value);

- Equivalent Annual Cost



3. Net Advantage / (Disadvantage) of owing to leasing



4. Depreciation table