Purchase Solution

Lease or Buy

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6. Hanna-Charles Company needs to add a new fleet of vehicles for their sales force. The purchasing manager has been working with a local car dealership to get the best value for the company dollar. After some negotiations, a local dealer has offered Hanna-Charles two options:

1) a three year lease on the fleet of cars or
2) 15% off the top to purchase outright.

Option 2 would cost Hanna-Charles company about 5% less than the lease option in terms of present value.

a. What are the advantages and disadvantages of leasing?
b. Which option should the purchasing manager at Hanna-Charles pursue and why?

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Solution Summary

This solution provides a detailed analysis of the given business question regarding a company that needs to acquire some assets.

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a. Advantages:
The lessor bears all the residual-value risk
Tax Benefits
No ...

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