Question

1. In a construction project, you wish to evaluate whether to lease or buy equipment that would cost you $5000 to buy. the leasing would cost $200 per month and a down payment of $400, and you need the equipment for 8 months with a potential to earn 5 percent if you are not buying the equipment. at the end of the 8-month period, the buyout of the equipment is about $1,200. Would you lease or buy the equipment?

Answer 1

1. If we look at the details and calculate we will understand the better option

Equipment required for 8 months

Rent per month = $200

Total expense in rent = $1600 (200 * 8)

down payment = $400

Total expense = $2000

While buying the equipment the cost = $5000

and the buyout after 8 months = $1200

Total cost to the company = 5000 - 1200

= $3800

Therefore it is better to rent the equipment for 8 months because the cost incurred is less and the asset is also depreciatinig