Is it better to purchase equipment through debt, or to lease equipment? Explain.
Is it better to purchase equipment through debt, or to lease equipment? Explain.
Homework Answers
It is better to lease an equipment rather than an outright purchase through debt
The advantages of leasing vs outright purchase is :
- Leasing is not expensive. Purchasing the equipment is a huge investment by the company . While leasing is cheaper .
- When we lease an equipment , the responsibility of the maintenance and upkeep of the machine lies with the lessor and not the lessee. So the lessee is absolved of any responsibility of maintaining the machine. While if we purchase te equipment, we need to pay for the upkeep and maintenance ,which is also quite expensive.
- After the lease term is over, the lessee can return machine back to the lessor . The capital which could have been used to purchase the machine and now be put to alternative uses that can promote growth in the company.
- The lessor need not have to worry about the higher interest rate charged on a loan, had he purchased the equipment via a loan from the banks/debt . He can pay the monthly lease payments from the income generated from the machinery itself .
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Is it better to purchase equipment through debt, or to lease
equipment? Explain.
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Lease versus purchase JLB Corporation is attempting to determine whether to lease or purchase research equipment....
Lease versus purchase
JLB Corporation is attempting to determine whether to
lease or purchase research equipment. The firm is in the 21% tax
bracket, and its after-tax cost of debt is currently 9%. The
terms of the lease and of the purchase are as follows:
Lease : Annual end-of-year lease payments of $31,000 are required
over the 3-year life of the lease. All maintenance costs will be
paid by the lessor; insurance and other costs will be borne by the...
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lease versus purchase
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Lease versus purchase
JLB Corporation is attempting to determine whether to
lease or purchase research equipment. The firm is in the 21% tax
bracket, and its after-tax cost of debt is currently 9%. The
terms of the lease and of the purchase are as follows:
Lease : Annual end-of-year lease payments of $31,000 are required
over the 3-year life of the lease. All maintenance costs will be
paid by the lessor; insurance and other costs will be borne by the...
5. The lease versus purchase analysis - Part 2 Which Is Better: To Lease or To Buy? A car buyer has two financing alternatives: to lease or to purchase. It is important to evaluate all the options and analyze the consequences of lease versus purchase decision. The understanding of a comparative worksheet that analyzes the automobile lease versus purchase decision will help in making an informed choice. How should a lease-versus-purchase analysis be conducted? How can this worksheet be applied...
A company can purchase some equipment for $2,000,000 or lease it for $410,000 at the beginning of each of the next 6 years. If the firm's before-tax cost of debt is 10% and its marginal tax rate is 25%, what is the present value cost of leasing this equipment? O $1,443,358 O $1,473,167 O $1,551,610 O $2,068,813
Frank Inc. is trying to decide whether to lease or purchase a piece of equipment needed for the next ten years. The equipment would cost $46,000 to purchase, and maintenance costs would be $5,800 per year. After ten years, Frank estimates it could sell the equipment for $21,000. If Frank leased the equipment, it would pay a set annual fee that would include all maintenance costs. Frank has determined after a net present value analysis that at its hurdie rate...
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