Asset acquisition is important for every business. One can either buy the asset or lease it. Comparing the present value of the outflows involved with the lease and buy options is a good way to decide but other factors are involved too. This simulation requires the learner to consider the nature of the asset, it’s rate of obsolescence, and the company’s cash flow situation before deciding to buy or lease
2007-01-17 09:14:59 · 3 answers · asked by marktonycarter 1 in Business & Finance ➔ Other - Business & Finance
Your question is more of a statement, really... the advantage is that discounting the cash flows is really the only way to compare the two options. I've never heard of a good alternative to that in making a lease/buy decision.
2007-01-17 09:23:30 · answer #1 · answered by morlock825 4 · 0⤊ 0⤋
The simple answer to your question: The time value of money. Cash flows that occur in the future do not have the same value had they occurred today. And your right, there are many factors. In fact, there are too many to consider without using an economic model of each alternative. Most factors can be accounted for in the model, including obsolescence. This is where the net present value is used to compare vastly different alternatives on an equal playing field.
2007-01-17 09:29:22 · answer #2 · answered by mb 1 · 0⤊ 0⤋
See your original question.
2016-03-29 02:07:08 · answer #3 · answered by Anonymous · 0⤊ 0⤋