When starting or expanding a business, the decision to either purchase or lease equipment can be tricky. An important concept called Net Present Value (NPV for short), teaches us that money actually has different values over time (e.g., it has “time value”). Since we live in a world of interest rates, appreciation, depreciation, and rates of return, this is rather intuitive. A dollar today is worth more than a dollar tomorrow because you can invest it today and get it earning a return now, rather than lose out on that one day of interest or appreciation.
In light of this, we’ve attached a simple Buy v. Lease Calculator (in Excel, of course!) that will help you to determine which option costs more – buying or leasing, using a basic example. More complex scenarios may warrant including other factors, such as cash flow, broader capital requirements, taxes (including interest deduction), special lease options (such as purchase-at-end), depreciation & resale value, and other investment choices.
Check it out here: Buy vs. Lease Calculator
We hope you find this tool to be useful as you contemplate various buy vs. lease scenarios. Let us know if you have any questions or comments. Thanks, for reading and keep checking in – there’s more to come!
-MBA Talent For Hire