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Buy or Lease and Amortization Schedule

- The document compares the costs of buying versus leasing a building over a 5 year period. - Buying the building initially requires a $25,000 cash investment and has depreciation tax benefits that lower costs each year. The building is estimated to sell for $116,000 after 5 years. - Leasing the building requires no upfront costs but has fixed annual lease payments of $10,000 that increase 3% each year. - When the costs are analyzed over 5 years and discounted to present value, buying the building has a net cost of $38,739.76 while leasing costs $43,906.22, making buying the more cost effective option.

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Rowson Akter
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110 views3 pages

Buy or Lease and Amortization Schedule

- The document compares the costs of buying versus leasing a building over a 5 year period. - Buying the building initially requires a $25,000 cash investment and has depreciation tax benefits that lower costs each year. The building is estimated to sell for $116,000 after 5 years. - Leasing the building requires no upfront costs but has fixed annual lease payments of $10,000 that increase 3% each year. - When the costs are analyzed over 5 years and discounted to present value, buying the building has a net cost of $38,739.76 while leasing costs $43,906.22, making buying the more cost effective option.

Uploaded by

Rowson Akter
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Buy or Lease Decisions

Intial Information
Buy
Cost of Purchase
Initial Cash Investment
Initial Processing Cost
Interest Rate
Mortgage in Year
Loan Amount
Buildings Estimated Life
Depreciation
The building will be sold at the end of 5 years
The estimatd After-tax Cashflow from Resale
Buildings Depreciable Value
Depreciation Per Year (Straight Line)
Common Inforamtion & Assumption
Cost of Capital
Tax Rate
First Year Operating Costs
Annual Increment of
Operatin Expense
Lease Payment

Lease
First Year Lease Payment
10,000
Annual Lease Payment will be due in advance
Lease for in year
5

100,000
25,000
3,000
9.50%
20
75,000
40
2000
116,000
33,454
80,000
2,000

10%
31%
3,500
3%
3%

Buy
Equity Investment
Operatin Expense
Depreciation Expense
Interset
Total Operating Expense
Tax Shield
Annual After Tax Cost of Buying
Operatin Expense
Interset
Principal
Tax Shield
Annual After Tax Cost of Buying
After Tax Cashinflow resale
Present value Discount Factor
Present value

0
28000

1.0000
28,000.00

3,500.00
2,000.00
7,125.00
12,625.00
3,913.75

3,605.00
2,000.00
6,993.35
12,598.35
3,905.49

3,713.15
2,000.00
6,849.20
12,562.35
3,894.33

3,824.54
2,000.00
6,691.35
12,515.90
3,879.93

3,939.28
2,000.00
6,518.51
12,457.79
3,861.92

3,500.00
7,125.00
$1,385.75
(3,913.75)
8,097.00

3,605.00
6,993.35
$1,517.40
(3,905.49)
8,210.26

3,713.15
6,849.20
$1,661.55
(3,894.33)
8,329.57

3,824.54
6,691.35
$1,819.40
(3,879.93)
8,455.37

0.9091
7,360.91

0.8264
6,785.34

0.7513
6,258.13

0.6830
5,775.13

3,939.28
6,518.51
$1,992.24
(3,861.92)
8,588.12
33,454.00
0.6209
5,332.55
20,772.30

1
10,000
3,500
13,500
4,185.00

2
10,000
3,605.00
13,605
4,217.55

3
10,000
3,713.15
13,713
4,251.08

4
10,000
3,824.54
13,825
4,285.61

3,939.28
3,939
1,221.18

10,000
3,500
(4,185.00)
9,315
8,468

10,000
3,500
(4,217.55)
9,282
7,671

10,000
3,500
(4,251.08)
9,249
6,949

10,000
3,500
(4,285.61)
9,214
6,294

10,000
3,500
(1,221.18)
12,279
7,624

Lease
0
10,000

Lease Payment
Operatin Expense
Total Expense
Tax Shield
Annual after cost of Leasing
Lease Payment
Operatin Expense
Less Tax Shield
Annual after cost of Leasing
PV of Annual Cost after Leasing

10,000
3,100.00

10,000
(3,100.00)
6,900
6,900

Summary of the Analysis


Intial Outlay
PV of Annual Cost
Total Cost
PV of Afer Tax Cashflow form Resale
Net Cost

Buying
Leasing
28,000.00
0
31,512.06
43,906
59,512.06
43,906.22
(20,772.30)
0
38,739.76
43,906.22

Loan Amount
Interest Rate
Mortgage in Year

75,000
9.50%
20

Year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Loan Outstanding Installemnt Payment


Interest Payment
$75,000.00
$75,000.00
$8,510.75
7,125.00
$73,614.25
$8,510.75
6,993.35
$72,096.85
$8,510.75
6,849.20
$70,435.30
$8,510.75
6,691.35
$68,615.90
$8,510.75
6,518.51
$66,623.66
$8,510.75
6,329.25
$64,442.15
$8,510.75
6,122.00
$62,053.40
$8,510.75
5,895.07
$59,437.73
$8,510.75
5,646.58
$56,573.56
$8,510.75
5,374.49
$53,437.29
$8,510.75
5,076.54
$50,003.08
$8,510.75
4,750.29
$46,242.63
$8,510.75
4,393.05
$42,124.92
$8,510.75
4,001.87
$37,616.04
$8,510.75
3,573.52
$32,678.81
$8,510.75
3,104.49
$27,272.54
$8,510.75
2,590.89
$21,352.68
$8,510.75
2,028.50
$14,870.44
$8,510.75
1,412.69
$7,772.38
$8,510.75
738.38
$0.00

Principal Payment
$1,385.75
$1,517.40
$1,661.55
$1,819.40
$1,992.24
$2,181.50
$2,388.75
$2,615.68
$2,864.17
$3,136.26
$3,434.21
$3,760.46
$4,117.70
$4,508.88
$4,937.23
$5,406.27
$5,919.86
$6,482.25
$7,098.06
$7,772.38

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