Lease vs. Buy Analysis

6827 WordsDec 14, 201128 Pages
Case #34: Lease versus Buy Analysis Why Buy It When You Can Lease It? David Bajak Katrina Bishop Gary Hsieh Question 1: What are the different kinds of leases available and which one would be best suited for Paulo’s restaurant? Explain why? There are two major types of leases: operating lease and financial lease. An operating lease places the responsibility of maintenance and repairs on the lessor, has a life span of no more than 5 years, and is usually cancellable. A financial lease places the responsibility of maintenance and repairs on the lessee and is usually noncancellable and fully amortized. Tax‐ oriented lease, sale‐and‐leaseback lease, and leverage lease are all examples of financial leases. •…show more content…
buy decision is also in favor of buying since the net advantage to leasing (NAL) is negative number. The NPV of leasing and buying were found to be negative indicating the projects will cost money rather than make money for the company. The NPV of leasing is ($82,966.11) however, for buying the costs are not as high showing an NPV of ($59,221.92). These values lead us to an NAL of ($23,744.19) which indicates buying is better than leasing. 2. Net Advantage to Leasing (OWNING ASSET) NPV (LEASE & OWN) Lease ‐ With Purchase (D) (E) (G) (F)
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