Lease vs. Buy Analysis

Use this page to help analyze whether to buy or lease a piece of equipment. We are assuming that the discount for present value and the cost of borrowing are different, though they could be equal. This tool does not take taxation into consideration. The tax consequences of a lease versus a purchase may be decisive, and will vary in each instance, so you should see your tax advisor.

Please answer the following questions:

Purchase Price:

This is the price of the item to be leased or purchased.

Taxes, Title and other related costs:

This refers to any additional funds required to complete the purchase or lease of the item.

Security Deposit:

This is money paid at the time the lease is signed. Typically, at the end of the lease the money is returned or applied to a purchase price.

Capital Cost Reduction:

Just like a down payment. The CAP reduces the amount of money being financed usually with the goal of reducing the monthly payment.

Resale Price:

This is the expected value of the item being leased at the end of the lease. This is a very important number. The leased payments are based on the purchase price less any Capital cost reduction less the resale price. At the end of the lease, if you want to continue using the item you would need to buy it for the resale price. If you are buying the item, this is the value of the asset you will own when the loan is paid.

Discount for Present Value:

This is the return you could get on your money if you did something else with it other than put it into this lease. If you would normally have the funds used for the Security deposit and the capital cost reduction in the bank earning 5% interest, then your Discount for present value is 5%.

Down Payment:

When buying, this is the money you put down on the item that is actually used to reduce the financed amount. This doesn't include any money paid for title, registration or other fees.

Resale Value:

This is the expected value of the item being leased at the end of the loan. Unlike a lease, this is the value of the asset you now own at the end of the loan.

Interest Rate:

This is the actual rate of interest you will be paying on the loan.