Lease Or Buy? Five Questions To Consider

Companies need to know the true cost of fleet ownership before deciding.


What Data Is Needed To Make The Comparison?

What information or data do you need to make a lease/own comparison? There are 12 basic items or costs--seven for ownership and five for leasing, you need to identify to perform an accurate comparison:

Ownership
• Initial cost of equipment: the original purchase price, including taxes, and additional equipment such as van bodies, tool boxes, headache racks, auxiliary power units, refrigeration units, etc.;
• Interest rate if considering a bank loan, length of loan and down payment;
• Length of asset life--how long will you utilize the equipment;
• Corporate tax rate--used to determine your company's net, after-tax benefits of depreciation write-off;
• Maintenance costs over the equipment's life;
• Administrative costs for licensing and tracking DOT compliance, plus the general and administrative costs associated with managing your fleet's maintenance;
• Net present value calculation of the monthly payments, finance cost, and maintenance cost over the equipment's lifetime.

Lease
• Lease rate;
• Variable cost (mileage rate) if a full-service lease;
• Length of lease;
• Net present value calculation of the lease payments over the equipment's lifetime;
• Residual responsibility--is it yours or does it belong to the lessor?

Again, it's vital to tally all associated administrative expenses under ownership and lease before you make comparisons. Once you have gathered this data, you can perform a net present value calculation on the lease payment, the finance cost and the maintenance cost over the equipment's lifetime.

It's also important to look at the net after-tax cash flows under ownership and leasing. This will give you the true picture of how depreciation impacts ownership and leasing cash flows. The net present value calculation will estimate the future cash flows of ownership and leasing in today's dollars so you can make an informed financial decision.

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