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Leasing and The Lease vs. Buy decision

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What is a lease?

What steps would you follow to decide whether to lease or buy a computer system?

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In simple terms, a lease is a contractual arrangement between the lessee (the customer) and the lessor (the funding source). The lessor purchases the equipment from your supplier of choice and leases it to the lessee for a fixed, regular payment. Generally, there are two different types of leases: a true lease and a finance lease.
Lease rates depend upon a variety of factors including:
? Type of business
? Number of years in business
? Business credit history
? Fair market value or $1.00 buyout
? Type, brand, and age of the equipment
Whether you lease your equipment, pay cash for it, or obtain a bank loan, sales or property taxes are charged according to the state and local authorities where your equipment is ...

Solution Summary

This solution provides a definition of a lease and discusses the steps necessary in the lease vs. buy decison.

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Analyzing Lease Vs. Buy Decisions

Summarize different capital budgeting concepts by answering the following questions:

1) What risks and uncertainties should be considered while making a lease vs. buy decision? How do these risks and uncertainties impact capital budgeting?

2) What is the advantage of computing the present value of outflows in making lease vs. buy decisions?

3) In what circumstances is a capital lease a better alternative to an operating lease? Under what circumstances is a capital lease a better alternative than buying an asset?

4) How do qualitative factors like the condition of an asset impact a final lease or buy decision?

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