| Lease or Purchase |
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Can I ever own this system? |
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If you could choose only one, is it the title that you want, or the use of the system? This "Right to Use" program actually protects you from ownership. In five to eight years, would you really want to use it? Would you want to buy a five-year-old computer today? How about a five-year-old printer? Many businesses are moving away from the burdens of carrying costly technological equipment on their books, especially because technology changes so rapidly and the "asset" does not appreciate. |
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When you think about it, you never really own a copier system, anyway. Yes, perhaps you have the title, but many companies are on their third or fourth system after their first of 20 years ago, and have received virtually "zero" cash back from the old systems. With ownership comes the cost of carrying a "stranded asset" on your books. Think about the system you have now: What is it worth? It is not a valued asset...a utility, yes, as cash value. In reality, most copier equipment payments don't stop - they are made at multi-year intervals in ONE BIG PAYMENT...the cost of a new system.
use our capital budget, not yours, and get all of the fire power now? |
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We want to own it, so we can depreciate the system. |
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Of course, you want to take advantage of the tax benefits. Depreciation is one way to do this, but remember that these are "computers"; they depreciate faster than you can get them off your books. Even if you use accelerated depreciation, it takes five years to "get even." Why not take 100% immediate deduction as you use it and let Uncle Sam pay a big part of the tab? Then, if you need a change midstream, you can. At the same time, improve you financial picture, because as a lease/rental it is not required to be carried on your Balance Sheet. Note the following*: |
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80% of the companies in the United States lease equipment and 95% of this equipment is upgraded or replaced within 30 months. The average life of a copier nationwide is 40 months. |
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* The Equipment Leasing Association, October, 1996 |
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QUESTION: "Isn't cash a cheaper way to go? |
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With cash, you would be using after-tax dollars. Lease/Rental is a dollar-for-dollar pre-tax expense" |
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Sample Exercise:
Subtract "1" minus the tax bracket. (1 - .4 = .6) Divide .6 into the price of the system
This is what paying cash really cost! |
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Fact: According to the Internal Revenue Service, the average corporation is in a 40% tax bracket. This means that for every dollar the corporation earns, it retains only 60 cents!
To have a dollar left after taxes, the corporation needs to generate $1.67 ($1.67 x .6 = $1.00) |
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What does this mean? It means that to pay cash for a $10,000 copier system, the corporation needs to generate $16,667 to have $10,000 left to buy this asset! (...and this asset will be worth very little in five years.) |
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Example:
| System Price |
= $ 42,500.00 |
| Tax Bracket |
= .40 (40%) |
| 1 - .4 |
= .60 |
| $42,500.00 / .6 |
= $ 70,833.00 |
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