Lease Vs Buy Analysis Corporate Finance -

However, there was the . That $3 million would be sucked out of their working capital. They wouldn't be able to invest in the new automated warehouse project, which had a projected IRR (Internal Rate of Return) of 15%. Chapter 2: The "Lease" Alternative

Alex sat in the dimly lit office of Midwest Logistics , the hum of a dying HVAC system a constant reminder of the company's aging infrastructure. As the newly minted Director of Finance, Alex had one job: modernize the delivery fleet without sinking the company’s cash reserves.

Alex opened Excel to calculate the .

Alex mapped out the purchase price, the tax savings from depreciation, and the estimated salvage value (the "leftover" cash when they sell the vans later), all discounted at the company's after-tax cost of debt.

The CEO, Sarah, wanted 50 new electric vans. "Buy them," she’d said. "We own our assets. We don’t rent." lease vs buy analysis corporate finance

Next, Alex looked at an operating lease. The leasing company offered a five-year term. The payments were higher than the interest on a loan, but they were as an operating expense.

Alex started with the purchase model. If Midwest Logistics bought the vans outright for $3 million, they’d get the . Under current tax laws, they could front-load the depreciation, reducing their taxable income significantly in the first few years. However, there was the

The real kicker? . In the fast-moving world of EV tech, these vans might be paperweights in five years. With a lease, Midwest could simply hand the keys back at the end of the term. The "Residual Value"—what the vans are worth at the end—was the leasing company’s problem, not Alex’s. Chapter 3: The NPV Showdown