Scribd Logo
Upload

Welcome to Scribd!

  • 316 views

    Lease Vs Buy Analysis

    Uploaded by

    Muhammed Amjad Islam
    The document contains calculations related to an equivalent loan method analysis comparing the after-tax cash flows of leasing versus buying an asset that costs $600,000. It calculates the annual lease payment of $140,000 and shows the after-tax cash flows from leasing and buying the asset over 6 years. It determines that leasing saves $80,800 per year compared to buying. The net present value of leasing is $(397,929.15) while buying is $(351,207.32), so leasing is the preferred option based on the equivalent loan method.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd

    Lease Vs Buy Analysis

    Uploaded by

    Muhammed Amjad Islam
    316 views4 pages
    The document contains calculations related to an equivalent loan method analysis comparing the after-tax cash flows of leasing versus buying an asset that costs $600,000. It calculates the annual lease payment of $140,000 and shows the after-tax cash flows from leasing and buying the asset over 6 years. It determines that leasing saves $80,800 per year compared to buying. The net present value of leasing is $(397,929.15) while buying is $(351,207.32), so leasing is the preferred option based on the equivalent loan method.

    Original Description:

    ggg

    Original Title

    Lease Vs Buy Analysis.xls

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    XLS, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document contains calculations related to an equivalent loan method analysis comparing the after-tax cash flows of leasing versus buying an asset that costs $600,000. It calculates the annual lease payment of $140,000 and shows the after-tax cash flows from leasing and buying the asset over 6 years. It determines that leasing saves $80,800 per year compared to buying. The net present value of leasing is $(397,929.15) while buying is $(351,207.32), so leasing is the preferred option based on the equivalent loan method.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    316 views4 pages

    Lease Vs Buy Analysis

    Uploaded by

    Muhammed Amjad Islam
    The document contains calculations related to an equivalent loan method analysis comparing the after-tax cash flows of leasing versus buying an asset that costs $600,000. It calculates the annual lease payment of $140,000 and shows the after-tax cash flows from leasing and buying the asset over 6 years. It determines that leasing saves $80,800 per year compared to buying. The net present value of leasing is $(397,929.15) while buying is $(351,207.32), so leasing is the preferred option based on the equivalent loan method.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    You are on page 1of 4
    At a glance
    Powered by AI
    The document discusses different methods for evaluating lease vs buy decisions including the Equivalent Loan Method, Lessor's Problem, and Basic Leveraged Lease examples.

    The Equivalent Loan Method calculates the implicit interest rate of a lease by determining the lowest interest rate at which it would be financially indifferent for a company to lease or buy an asset.

    The Lessor's Problem calculates the lowest acceptable lease payment that would provide the required rate of return to the lessor (owner of the asset).

    UN-3B

    A 1 2 3 4 5 6 7 8 9 10 11 12 14 15 16 17 18 19 20 21 22 24

    EQUIVALENT LOAN METHOD Asset cost Interest rate Lease rental payment Annual depreciation Tax rate Residual Value Lease Term (years) Year 600,000 12% 140,000 100,000 40% 150,000 6 (advance payment) 0 1 2 3 4 5 6

    After-tax cash flows from leasing 13 After-tax lease rental -84,000

    -84,000

    -84,000

    -84,000

    -84,000

    -84,000

    -84,000

    After-tax cash flows from buying the asset using bank loan Asset cost Interest Exp -43,200 -43,200 Depreciation tax shield 40,000 40,000 Residual Value Net cash from buying -3,200 -3,200

    -43,200 40,000 -3,200

    -43,200 40,000 -3,200

    -43,200 40,000 -3,200

    -643,200 40,000 90,000 -513,200

    Differential cash flow: Lease saves lessor 23 Lease minus buy -84,000 NPV (Leasing) 26 NPV (Buy) 27 Decision??
    25

    -80,800

    -80,800

    -80,800

    -80,800

    -80,800

    429,200

    (397,929.15) ($351,207.32)

    UN-3B

    1 2 Asset cost 3 Interest rate 4 Lowest acceptable lease payment 5 Annual depreciation 6 Tax rate 7 Lease term (years) 8 9 Year 10 11 Lessor after-tax cash flows from leasing 12 After-tax lease rental 13

    THE LESSOR'S PROBLEM Calculating the lowest acceptable lease rate 600,000 12% 140,000 100,000 40% 6 (advance payment) 0 1 2 3 4 5 6

    14 Lessor after-tax cash flows from buying the asset 15 Asset cost 16 Depreciation tax shield 17 Net cash from buying 18 19 Lessor cash flows 20 Lease + buy 21 22 IRR of cash flow

    BASIC LEVERAGED LEASE EXAMPLE Cost of asset Lease term Residual value Equity Debt Interest Annual debt payment Annual rent received Tax rate 1,000,000 15 300,000 <-- Realized year 16 200,000 800,000 <-- 15-year term loan, equal payments of interest and principal 10% 105,179 <-- =PMT(B7,B3,-B6) 110,000 40% Equity Invested Rental or salvage Principal Loan Depreciation at start of Interest payment year

    Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

    IRR of cash flows

    PLE

    of interest and principal

    Repayment of principal

    Cash flow to equity

    IRR of cash flows

    You might also like

    pFad - Phonifier reborn

    Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

    Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


    Alternative Proxies:

    Alternative Proxy

    pFad Proxy

    pFad v3 Proxy

    pFad v4 Proxy