With the Buy and lease scenario provided, the best course of action for the company is to buy the needed machine through installment buying. After 11 years, the company will have paid $83,250.86 in cash flow through the lease with a $13,971.64 payment per year. By Buying through installment, the company will pay $72,356.57 for the needed machine, which is $10894.29 less as could have been spent when leasing. Therefore, the best course of action for this project is to buy the required machine.
Important of buying by the lease is that it gives the company time to get the machine with minimal expenses. The lower initial cost is because leasing of equipment rarely requires the company to make any down payments, and the firm can acquire the machine without significantly affecting cash flow. Another advantage of purchasing through leasing is that it can easily upgrade its machines and equipment (Wang and Richardson). This is because leasing allows the company to address the problem of obsolescence and use its outdated to acquire new high-end equipment. The main disadvantage of buying through leasing is the overall high cost. Leasing items are always expensive for the company, and you do not own the machine until the full payment is made.
Buying as opposed to leasing gives the company immediate ownership of the machines. This is significant, especially when the device has a long useful in life and will not become outdated soon (Wang and Richardson). Buying is easier since it does not require contracts and agreements, and the company can sell the machine once done with it, which may help recover some of the cost. Again, the main disadvantage of buying by installment is the high initial expense compared to the lower monthly payments, which are easy to budget. Since you gain ownership after buying the machine, the company is responsible for all the maintenance and costs; hence the firm is potentially burdened with broken machines that cannot be sold or returned.
Work Cited
Wang, Yupeng, and Douglas S. Richardson. “To Buy or to Lease.”EMBO Reports, vol. 21, no. 5, 2020, Web.