|
|
The Equipment
|
|
Whenever the actual tax benefits of leasing equipment are combined with the conservation
of capital which leasing provides... and to that amount, add the potential income that will
be derived from the conserved capital... then without a doubt, leasing is definitely the
cheaper method. This is fully demonstrated with the following example.
|
| Cash Outlay | |||
| Buying Equipment | Leasing Equipment | ||
| Cost of Equipment | $20,000 |
Total Lease Payments $405.71 X 60 Months |
$24,343 |
| Plus 10% Buy Out | $2,000 | ||
| Total Amount | $26,343 | ||
| Cash Inflow | |||
| Buying Equipment | Leasing Equipment | ||
|
Tax Savings... Using a 179 Deduction |
$20,000 |
Tax Savings... Total Amount Paid |
$26,343 |
| Times Tax Rate | 31% | Times Tax Rate | 31% |
| Equals | $6,200 | Equals | $8,166 |
| Net Cost to Own Equipment | |||
| Buying Equipment | Leasing Equipment | ||
| Purchase Price... | $20,000 | Total Lease Cost... | $26,343 |
| Less Tax Savings | $6,200 | Less Tax Savings | $8,166 |
| Less Interest Earned | 0 |
Less Interest Earned (6% Compounded Monthly) |
$6,977 |
| Net Cost | $13,800 | Net Cost | $11,200 |
| Total Assets Owned | |||
| Buying Equipment | Leasing Equipment | ||
| Equipment Only |
Equipment Plus a Certificate of Deposit |
||
|
The above example clearly demonstrates that when a company fully utilizes leasing as a financial
tool of leverage (while taking full advantage of the tax benefits that leasing provides)
the actual overall cost of equipment will be considerably lower. As you can easily see in
this example, by leasing the equipment this company saved $2,600.
|
