Lease-Or-Buy Decision - Texas Instruments BA II PLUS User Manual

Lease-or-Buy Decision

Your business is considering getting a new computer server. If
you lease, you would pay $36,000 per year for five years at the
first of each year. You could buy it for $125,000. The server is
expected to save the company $46,000 per year. It will have no
resale value at the end of the five years. The company can
borrow at 15% annual interest. You require a 20% annual return
on projects and investments of this kind. Ignoring tax effects,
should you acquire it, and if so, should you lease or purchase it?
Example: Present Value of Cost Savings
Procedure
Set all variables to defaults.
Set payments per year to 1.
Return to calculator mode.
Enter number of periods.
Enter required annual return
rate.
Enter annual savings.
Compute present value of
savings.
The present value of the annual savings exceeds the purchase
price (i.e., the investment will exceed your annual required
return rate). Acquiring the server is a good financial move.
Should you lease or buy it?
46
Keystrokes
& } !
& [ !
1
& U
,
5
-
20
S /
46000
% .
BA II PLUS™ Calculator
Display
RST 0.00
P/Y= 1.00
0.00
N= 5.00
I/Y= 20.00
PMT= -46,000.00
PV= 137,568.16...
P
P
P
P