Leasing is common practice in business and is essential in the management of power, plant, and equipment assets. The defination of a lease is “a contract between a lessee, who acquires the services of a leased asset by making a series of payments to the lessor, who is the owner of the asset”. Basically, a lease is an agreement between an owner of a building, machine, property, and an entity that needs to use the asset for specific time at a specific fixed payment.
A common reason why a person or company would choose to lease opposed to buy is that the rights transfer to the lessee versus the owner. When a person or company leases they will obtain the right to use the asset up until the end of the agreement. Another reason why a person or company would choose to lease opposed to buy is the NPV; the cost in savings of a lease may more than offset the negative NPV of purchase.
What steps would you follow to decide whether to lease or buy a computer system?
First of all, a person would need to calculate the net present value NPV of purchasing if the present value is positive then compute the NAL, then if the NAL is positive then and then the positive present-value cost advantage over normal purchase financing, then the computer should be leased.