Analyzing Lease Versus Buy Decisions" Simulation Summary

967 words - 4 pages

Analyzing Lease Versus Buy Decisions" Simulation SummaryA. For a high-technology item, like computer equipment, is the lease option preferable from the very outset? Why or why not?Yes, because from the start companies are not profitable and do not receive tax breaks. To buy out right can be costly and equipment will need to be upgraded sooner than the old equipment is profitable. Companies will most likely need to upgrade to remain competitive this can be costly for a new company. Also lease down payments are often cheaper than purchase payments. Due to the high rate of obsolescence, high technology assets like computer equipment are frequently leased rather than purchased outright. The lease gives the business the flexibility to acquire the latest technology on a periodic basis. In contrast, a buyer can be locked into a technology by buying it, and must persist with it even after the technology has changed considerably.B. Do factors like down payment and the security deposit that has to be paid upfront on an asset have a major influence on a lease or loan option? Explain your answer.Yes, because down payments and security deposits are paid from company cashand affects cash flow and balance sheets. Loan options often allow anorganization to purchase expensive equipment with-out upfront cost to thecompany. Consider buying a car. You often have to make a sizeable down-payment when you purchase a car. (-2) A down payment and a security deposit paid upfront lower the risk for the lender or lessor. This lowers the present value of the loan or lease related cash outflows for the business acquiring the asset. This in turn lowers the installments that have to be paid on a lease or loan. Depending on the magnitude of the upfront payments made, there can be a significant lowering of the lease or loan payments. However, businesses usually do not have large surplus funds with them for this purpose, which is the reason they require a loan or lease to acquire an asset.C. Under what circumstances is a capital lease a better alternative to an operatinglease?Capital lease is classified and accounted for by a lessee as a purchase and by the lesser as a sale or financing. If it meets any one of the following criteria:the lesser transfers ownership to the lessee at the end of the lease termthe lease contains an option to purchase the asset at a bargain pricethe lease term is equal to 75 percent or more of the estimated economic life of the property (exceptions for used property leased toward the end of its useful life); orthe present value of minimum lease rental.Operating lease is another accounting classification for a lease. A lease that does not meet the criteria for a capital lease is an operating lease. With an operating lease, the lesser is generally taking a risk that at the end of the term...

Find Another Essay On Analyzing Lease Versus Buy Decisions" Simulation Summary

Analzing Lease Simulation Essay

1481 words - 6 pages The simulation “Analyzing Lease vs. Buy Decisions” is a simulation that walks a person through a research company, Bonnesante Research Company out of California. As the CEO of the company, the CEO must select to optimal mode of financing the company’s acquisitions. This will be shown by a brief scenario’s of each section, the CEO’s recommendations and to summarize the different capital budgeting concepts addressed from

Perceptual Maps in Marketing Simulation - Thorr Motorcycles

981 words - 4 pages an easy to ensure customer loyalty while keeping dealers and distributors happy. Finally, I chose Price because price is what drives purchase decisions and it is tied directly to brand image. According to the simulation all of my choices except for Product Design and Styling were correct. The simulation chose Quality Engineering rather than style, because it covers almost every aspect of a product, encompassing style and designThe second step in

Applying Supply And Demand Concepts Paper

1343 words - 6 pages supplied (QS) are at an equal point, when there is no competition between buy and sell.Changes in supply and demand can cause the QD and QS to be constantly battling to find that equilibrium. In the simulation, the changes were caused by factors both internal and external to Goodlife Management Company. The location of the properties was a selling point to the consumer, enticing the consumer to rent a unit because of where it was located. The

"Analyzing Income Tax Implications" Cycle III and IV

736 words - 3 pages This paper will analysis the simulation about "Analyzing Income Tax Implications" Cycle III and IV. Although some parts of the simulation were very fundamental in essence it still provided many examples that enforced the decision-making process. These two cycles present scenarios regarding computing applicable deductions to arrive at net taxable income and applying the tax rate to taxable income to compute income tax. Within this paper, I will

"Caladonia Products" Integrative Problem Paper

1019 words - 4 pages NPV.Lease versus Buy FactorsThe decision to lease or buy assets can be an important one for a company as a company can use a lease-purchase analysis to help come to the best conclusion. Analysts typically calculate the net present value before determining if an asset should be purchased or leased. The analysts then would take a look at the net advantage of leasing over purchasing.Several factors should be reviewed by the company which is considering

Using Perceptual Maps in Marketing: Thorr Motorcycle

1803 words - 7 pages is an easy to ensure customer loyalty while keeping dealers and distributors happy. Finally, I suggested price because price is what drives purchase decisions and it is tied directly to brand image. According to the simulation all of my suggestions except for product design and styling were correct. The simulation suggested quality engineering rather than style, because it covers almost every aspect of a product, encompassing style and

Supply and Demand – Good Life Property Management ECO 360, Economics for Business I

1333 words - 5 pages , and the effect that each concept has on the outcome of the decision.The Property Manager of Goodlife Management, with assistance from the experts was able to make good business decisions based on the economic conditions, preferences, and expectations of the citizens of Atlantis.ReferenceUniversity of Phoenix. (2007). Applying Supply and Demand Concepts. Retrieved October 19, 2007, from University of Phoenix, rEsource Web Site Economics for Business I, Simulation.

Financial Strategies and Income Generation of Selected Housing Companies

2256 words - 10 pages correct discount rate for riskless cash flows; (ii) differences in the lives of the lease contract versus the acquiring option; (iii) risk differences in each cash ‘flow, or stream of cash flows; and (iv) the financing decisions between alternative acquisition plans. Brealy and Young (1980) address the problem of timing using Miller’s 1977 equilibrium model where personal taxes on interest receipts and equity returns are considered, and where

ECO/360 Supply and Demand Simulation

1221 words - 5 pages The purpose of this paper is to summarize the supply and demand simulation in Resource for ECO/360, answer the instructor's questions regarding the simulation, and provide a summary of the results of the simulation. After reading this paper, the audience should understand how the simulation helps the user to better comprehend how the market is affected by supply and demand.Content SummaryThe purpose of the simulation is to familiarize the user

TRAFFIC SIMULATION in regards to freeway control

644 words - 3 pages Further development of simulation programs have enhanced the traffic engineering field to provide in depth analysis of current, real world transportation networks. These simulation guides analysis into better interpretation of these networks in order to make informed decisions towards design additions and improvements for a given network. Specifically, microscopic simulation provides even greater detail for analyzing various traffic scenarios

Applying Supply and Demand

712 words - 3 pages . In summary this simulation shows that there needs to be a balance of cost. That as supply decreases demands usually increases. It seems that the value of an item is dictated by many factors, but once the market is decided then supply and demand determine the going price.

Similar Essays

Analyzing Lease Vs. Buy Decisions Simulation

1291 words - 5 pages purchased, what impact will the purchase have to the company’s financial standing. Understanding the advantages of buying compared to leasing along with calculating the after-tax outflows, will aid the lease versus buy decision-making process.Scenario Bonnesante Research is a biotech start-up company based out of Irvine, California that is targeting their anti-infective drug division for growth. The company is faced with three major decisions on

Analyzing Lease Vs. Buy Decisions Essay

896 words - 4 pages leasing versus buying for certain situations. This required me to consider things such as the nature of the asset, its rate of obsolescence, and the company's cash flow situation before making the decision to buy or lease. Following are the situations and the decisions that I made as well as explanations as to why I made the decisions I did.For the first part of the simulation my goal was to evaluate the different lease and loan options for the

Lease Versus Buy Essay

1298 words - 5 pages and express them in terms of their present values, to determine their net present values. In summary the Net Present Value calculation determines today's value of future cash flows." (www.pngbd.com Retrieved November 6, 2006).When determining when to lease vs buy, an organization should take into account the financial and non-financial issues. When considering the financial aspect, it should include the cost to acquire an asset; if there will be a

To B Uy Or Not To Buy Lease Vs. Buy Decisions

738 words - 3 pages During the course of Week 2 in Finance 325 students were asked to complete a simulation titled "Analyzing Lease vs. Buy Decisions." Bonnesante Research is a strong biotech start-up based in Irvine, California. Bonnesante is trying to tap into the very profitable anti-infective drug segment of the pharmaceutical market. In order to do so Bonnesante requires additional capital purchases over a 6-7 year period. Acting as the firm's Chief Financial