Corporate Buy vs. Lease Analysis A Presentation by Team Four: Junni Kim Trung Nguy Robert Quesada II Felipe Vargas Yiu-Ming Yuen February 10, 2004
Our Scenario n n The Client: 3 D graphics design company The Consultant: Engineering consulting company needs to replace 25 PC’s for its client Consultant considers buying or leasing the workstation equipment 3 D graphics application recommends P 4, 2. 5 GHz processor, 1 GB SDRAM, 120 GB HD, 256 MB video ram, and DVD-RW capability
Resources n n n www. dell. com for workstation equipment Class textbook: “Essentials of Engineering Economic Analysis”, 2 nd ed. Search engines to find reputable internet consulting firms for more examples and ideas of methodology
Equipment Chosen n n n Dell Precision Dimension 8300 P-4 at 3. 2 GHz 1 GB SDRAM 120 GB HD 256 MB video ram DVD-RW Total Cost of equipment: $2, 282/PC x 25 PC’s = $37, 425
Our Options to Acquire this Equipment n n Fair Market Value Lease 10% Purchase Option Lease $1 Buy-Out Purchase Plan Lease Finance Purchase
Cost of Each Option
Benefits of Leasing n n n Smaller Capital Expenditure Protection Against Obsolesce Flexibility Tax Advantages Improved Balance Sheet
Costs of Leasing n n n Finance Charges No resale value realized Technology upgrade options are expensive
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