Leasing Vs Buying Decision
For a company to decide whether to buy any equipment or take on lease agreement, it has to compare the NPV of both leasing & buying options.
The net cost of buying is the cost of asset less the PV of tax saving s on depreciation etc. Associated with the purchase of assets NPV of leasing is the post tax PV of lease rental outflows.
NPV (Buying) < NPV (Leasing) – Better to buy.
NPV (Leasing) < NPV (Buying) – Better to go for Lease.
NPV (B) = Cost of Asset – Tax Benefits.
NPV (L) = (1-Tax)
Tags: Buying, Buying Decision, Decision, Hire, Hire Purchase, Leasing, Leasing Vs Buying Decision, Lessee, Lessor, Purchase
By: Management Duniya
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