Factors to Consider if Doing a Lease vs. Buying for the Two Projects
I have no clue if this is what the correct answer would be but here is what I have:
If this is a long-term project the company may want to consider buying. However, if it is a short-term project like the 5 years shown, leasing could be the way to go.
“Leasing comes with its own potential drawbacks, of course. A lease payment typically includes an interest component that a cash purchase would not include. Moreover, leasing requires the business owner to be fairly aggressive in the realm of asset management.
Leasing requires another kind of management skill, too. That is: Lifecycle management. Whereas buying typically means picking up something inexpensive to do the job right now, leasing means that a business is looking at the bigger picture, planning for future upgrades and evolving needs.
Leasing also helps a firm to build up a credit relationship with its bank. By financing a lease through your regular financial institution, it creates a certain amount of activity, which shows that you are a real player” (Stone, 2003, P 6 & 8).
A firm may want to have the option to abandon the project as the cash flow for the project changes over time. If the project is barely profitable the firm may decide to liquidate the project and sell all the equipment. Liquidating the project may be more valuable than keeping the project running. The technology associated with the project may be of more value than the project which is why the company may want to liquidate. Leasing equipment allows for a project to be abandoned easier than buying.