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Investment Analysis; Lease Vs. Purchase - HP 12c Solutions Handbook

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Lease vs. Purchase

An investment decision frequently encountered is the decision to lease or
purchase capital equipment or buildings. Although a thorough evaluation
of a complex acquisition usually requires the services of a qualified
accountant, it is possible to simplify a number of the assumptions to
produce a first approximation.
The following HP-12C program assumes that the purchase is financed
with a loan and that the loan is made for the term of the lease. The tax
advantages of interest paid, depreciation, and the investment credit which
accrues from ownership are compared to the tax advantage of treating the
lease payment as an expense. The resulting cash flows are discounted to
the present at the firm's after-tax cost of capital.
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