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Leasing question
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Mav
Posted 11/28/2012 08:57 (#2721194 - in reply to #2720952)
Subject: RE: What I think you guys taught me


Actually, the spreadsheet is saying that leasing a tractor at $15,000 for five years (the top part) is the same thing as costing you a lump sum of $53,700 at this very point of time.

The lower part is just a quick analysis I did for taking a $120,000 tractor, paying 20% down, borrowing the difference at 4% interest, deducting $100,000 the first year and $20,000 the second, paying a $9,000 repair bill in year three, and then selling it for $65,000 after five years. The result gives a lump sum cost of about $60,600 in terms of dollars now.

Both scenarios begin without a owning the tractor and end without the tractor…so they are very much the same.

The thing you have to understand is that the lease is not costing you $75,000. It is only costing you $53,700…with the assumption that you are in a 15% marginal tax bracket and your cost of money is 6%. Likewise, the purchase and sell five years later does not cost you $75,821, it only costs you $60,600. All this hinges on the fact that dollars received/saved now are worth more than dollars received/saved later.

Mav




Edited by Mav 11/28/2012 09:00
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