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  1. #1
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    Template Cash Purchase VS Rental (Compter Equipment)

    I would set up a spreadsheet to determine which is most beneficial route to go-to purchase computers and printers to the value of $ 80,000 for cash or to rent/lease these over a 3 year period.The interest rate is 9% in year 1 with a 2% escalation per annum thereafter

    The computers and printers that are purchased for cash can be written off tax purposes immediately in the year of purchase-The downside is that there is a cash outflow of $80000 immediately. The tax rate is 28%

    It would be appreciated if someone can check my spreadsheet to advise whether i am on the right track and if not to make any changes/comments

    Your assistance in this regard will be most appreciated
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  2. #2
    Super Moderator RetiredGeek's Avatar
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    Howard,

    I'm a little confused by your worksheet.
    1. Is the Rental Amount computed at a percentage (Interest as you have it labled)?
    2. If so why is the rental rate increased in years 2 & 3?
    3. Also, if the Purchase price is 80k and rental is based on a percentage why is there no adjustment for the residual value of the computers after 3 years in the base amount before calculating the rent amount?
    4. If you purchase are you going to borrow the money {at what interest rate} or if yo have the cash what interest rate would it earn if you rented?
    May the Forces of good computing be with you!

    RG

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  3. #3
    Super Moderator RetiredGeek's Avatar
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    Howard,

    I'm a little confused by your worksheet.

    1. Is the Rental Amount computed at a percentage (Interest as you have it labled)?
    2. If so why is the rental rate increased in years 2 & 3?
    3. Also, if the Purchase price is 80k and rental is based on a percentage why is there no adjustment for the residual value of the computers after 3 years in the base amount before calculating the rent amount?
    4. If you purchase are you going to borrow the money {at what interest rate} or if yo have the cash what interest rate would it earn if you rented?

    The attached workbook takes into account the tax consequences and yearly net cash flows. It still leaves out the residual of the computers in year 4 and the opportunity cost of the 80k cash.
    Attached Files Attached Files
    Last edited by RetiredGeek; 2011-08-13 at 05:53.
    May the Forces of good computing be with you!

    RG

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  4. #4
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    Hi RG

    Thanks for the reply

    1) I have computed the monthly rental at 9% on the the purchase price of $ 80000.
    2) There would be a 2% escalation in the next 2 years
    3) There residual would be 30% of the original purchase price of $80000
    4) The interest rate at which the $80000 can be invested at would be 5% -We have the cash resources to purchae the equipment so there would be no borrowings

    I forgot to mention the the sales tax is 14% which must be taken into account in the monthly rental

    It would be appreciated if you would amend the spreadsheet taking the above into account

    Regards

    Howard
    Last edited by HowardC; 2011-08-13 at 06:22.

  5. #5
    Super Moderator RetiredGeek's Avatar
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    Howard,

    You stated:
    1) I have computed the monthly rental at 9% on the the purchase price of $ 80000.
    It is my understanding that leases are usually calculated on the purchase price - residual value? Are you computing this on your own or have you actually received a quote from a rental company?

    As I stated in your previous thread on this topic this gets quite complicated as it involves cash flow projections over a period of 3 years for 2 different scenarios with many variables. I think it is getting a bit beyond the scope of this forum and I'd suggest that you get with your accounting dept or accountant who is familiar with your situation and on the spot to ask the appropriate questions and assist you in finding the correct solution.
    May the Forces of good computing be with you!

    RG

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  6. #6
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    Hi RG

    Thanks for the reply. I have made certain assumptions myself, but would need to get a quote so as to make a meaningful comparison. One would have discount the cash flows in years 2 and 3 as well. I will wait until I get a quote from the rental company and then get hold of one of the lecturers in the accounting dept at the local university to assist

    Regards

    Howard

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