1,124
19
Essay, 2 pages (350 words)

Finance leasing option essay

At first glance, the leasing option may seem equally enticing as the borrow-purchase plan for this equipment, but after the first year the value of choosing the borrow-purchase plan becomes more and more clear. Though the plans again come close to the same cost in the fourth year, the savings in the second year and especially in the third year make the borrow-purchase option the best choice by far. In the first year, the after tax cost of leasing is one dollar cheaper than the cost of borrow-purchase plan.

However, in the second year the leasing cost is $243 more and $372 more in the third year. In the final year, the costs begin to level out again with the leasing option being only $77 more expensive than the borrow-purchase plan. So, except for in the first year, the borrow-purchase plan is considerably more cost effective than the leasing.

In the course of the years, the borrow-purchase plan has a total cost of $691 less than the leasing option. The only way the leasing plan would make sense if the interest rate on loan was variable and expected to go higher or if the corporation was already leveraged to a point that an additional loan could affect its overall financial rating. Given that these issues are not in evidence, with all things being equal, the leasing option is a bad choice. By choosing the borrow-purchase option, the company can save almost a tenth of the total purchase price over the course of four years. Additionally, the tax savings generated by the borrow-purchase plan are significantly more beneficial than the leasing option. With the leasing option, the business may take the tax shield benefit, but loses the ability to claim depreciation.

The tax credit allowed in depreciation also helps make the decision. In four years time, the tax benefits for the borrow-purchase option are the determining factor in making it the more affordable option. Again, if tax laws were less favorable, this might not be the case.

Another option the company would have to consider would be financial incentives for paying the loan off early. If the company could afford to pay the loan earlier, it could save on interest payments and make the borrow-purchase option that much more attractive.

Thank's for Your Vote!
Finance leasing option essay. Page 1
Finance leasing option essay. Page 2
Finance leasing option essay. Page 3

This work, titled "Finance leasing option essay" was written and willingly shared by a fellow student. This sample can be utilized as a research and reference resource to aid in the writing of your own work. Any use of the work that does not include an appropriate citation is banned.

If you are the owner of this work and don’t want it to be published on AssignBuster, request its removal.

Request Removal
Cite this Essay

References

AssignBuster. (2022) 'Finance leasing option essay'. 22 September.

Reference

AssignBuster. (2022, September 22). Finance leasing option essay. Retrieved from https://assignbuster.com/finance-leasing-option-essay/

References

AssignBuster. 2022. "Finance leasing option essay." September 22, 2022. https://assignbuster.com/finance-leasing-option-essay/.

1. AssignBuster. "Finance leasing option essay." September 22, 2022. https://assignbuster.com/finance-leasing-option-essay/.


Bibliography


AssignBuster. "Finance leasing option essay." September 22, 2022. https://assignbuster.com/finance-leasing-option-essay/.

Work Cited

"Finance leasing option essay." AssignBuster, 22 Sept. 2022, assignbuster.com/finance-leasing-option-essay/.

Get in Touch

Please, let us know if you have any ideas on improving Finance leasing option essay, or our service. We will be happy to hear what you think: [email protected]