Buy or Lease Analysis in a Capital Asset Acquisition Decision

 

Audience: All Levels
Duration: 4 hours
Location: Miami Business School, University of Miami

Overview

Buy or lease is an important corporate decision that financial managers have to make when they acquire an asset. The lessee saves the cost of purchasing the asset. In return, the lessee commits to a series of lease payments that are generally tax-deductible. The lessee thereby gives up the depreciation tax shields and any other tax credit associated with ownership, forgoes the interest tax shields that come from any debt financing, and loses the salvage or residual value of the asset. This module provides detailed analysis of lease versus purchase decision derived from a general Net Present Value (NPV) framework, also known as the “net advantage of leasing” (NAL). The analysis considers purchase price, lease payments, depreciation, interest expenses, operating cost savings, residual value, Alternative Minimum Tax (AMT), and other factors that are involved in the buy or lease decision process.

The module can benefit corporate managers, financial analysts, corporate strategic planners, and accountants. It is particularly helpful to firms in an equipment-intensive industry.

Faculty


 Tie Su

Dr. Tie Su, CFA, Department of Finance, Associate Professor, Finance

Research Interests - Option pricing and hedging; asset valuation; and market microstructure

Featured Publications –

“Weak and Semi-Strong Form Stock Return Predictability Revisited,” (with Wayne Ferson and Andrea Heuson), Management Science

"Discretionary Reductions in Warrant Exercise Prices," Journal of Financial Economics (coauthor with Howe)

"How the Equity Market Responds to Unanticipated Events," Journal of Business (coauthor with Patel and Brooks)

"A Simple Cost Reduction Strategy for Liquidity Traders: Trade at the Opening," Journal of Financial and Quantitative Analysis (coauthor with Brooks)

 

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