An analysis of the buy-vs-lease decision.
This article presents a financial model to analyze the buy-vs-lease decision. The model is constructed from the perspective of a lessee with an operating lease and uses the concept of net present value, which calculates the current value of predicted cash flows in the future. Predicted cash flows of an operating lease compared with buying are presented in the model, as is the after-tax borrowing rate, the appropriate discount rate used in a model of this type. The article also discusses nonfinancial factors that may influence the buy-vs-lease decision, including the need for flexibility in working capital and the anticipated technological obsolescence of equipment.
Berlin
Jonathan W
JW
Evanston Northwestern Healthcare, Northwestern University, Feinberg School of Medicine, Department of Diagnostic Radiology, Evanston, IL 60201, USA. jonathanberlin@yahoo.com
Lexa
Frank J
FJ
D002201:Capital Expenditures; D003365:Costs and Cost Analysis; D003661:Decision Support Techniques; D003952:Diagnostic Imaging / Q000191:economics* / Q000295:instrumentation; D005376:Financial Management / Q000191:economics*; D006123:Group Practice / Q000191:economics*; D007860:Leasing, Property / Q000191:economics*; D018803:Models, Economic; D010067:Ownership / Q000191:economics*; D011871:Radiology / Q000191:economics* / Q000295:instrumentation; D014481:United States