In this paper a simulation scenario will be discussed in order to understand the decision between lease and purchase. In everyday cases, many individuals often come across the same question. Answers should be based upon convenience, long term or short term as well as options available. Especially when it comes to business, there is no need to rush to make a choice. During the simulation it will be discussed the process in which a company has to make a purchase choice based on assets, any liabilities involved as well as the need versus luxury. The other option to lease would involve contracts, high ...view middle of the document...
Like leasing, there are several factors that are involved in deciding whether to purchase capital equipment. The first consideration is how long the equipment will be kept and if it must be new or used. If the equipment is short term or if a new item is needed. If the item can be purchased used, the cost may be significantly less. This would be most applicable to new businesses where new equipment would significantly lower the cash flows and allow them to build more capital before purchasing or leasing new. Purchasing typically requires a higher initial outlay of cash due to financing and interest rate burdens. The business must further evaluate how quickly the technology changes. A lease may provide more flexibility to upgrade to new equipment when new technology is available to keep the competitive edge. The final determining factor is the tax benefit. Leasing usually allows full deduction of the lease payment immediately while the purchase only allows deductions of the interest paid...
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