CH12 Buy vs. Lease

CH12 Buy vs. Lease - Click to edit Master subtitle style...

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9/8/10 Click to edit Master subtitle style Buy vs. lease Your project NPV is positive. Should you buy or lease the equipment?
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9/8/10 Reminder In Capital Budgeting (Brigham 12-14) we only considered financing as part of the required rate of return, typically WACC or Risk Adjusted WACC But companies have to also decide how they will finance their equipment purchases even after the NPV >0
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9/8/10 Buy vs. Lease Analysis Buy vs. lease analysis allows us to compare the Present Value of the Cash Flows under each scenario This analysis is very common…. . In fact, you could use a version of it for… a) buy a condo vs. rent an apartment b) buy a car or lease a car
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9/8/10 What are the cash flows of… Leasing vs. Buying: Leasing Initial Investment (time 0) - NO Initial Investment! Annual Incremental Cash Flows (time 1 through n) – Use IS! - Lease payments, usually including maintenance - Tax impact of reduced EBT Terminal Year Cash Flows (time n) - NO Salvage Value!
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9/8/10 Leasing Obj10
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9/8/10 What are the cash flows of… Leasing vs. Buying: Buying Initial Investment (time 0) - Proceeds from a loan (positive cash flow) - Payment for machine (negative cash flow) Annual Incremental Cash Flows (time 1 through n) – Use IS! - Depreciation
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CH12 Buy vs. Lease - Click to edit Master subtitle style...

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