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Chapter 20. Building Discount Formulas > Buying Versus Leasing

Buying Versus Leasing

Another common business conundrum is whether to purchase equipment outright or to lease it. Again, you figure the present value of both sides to compare them, with the preferable option being the one that provides the lower present value. (This ignores complicating factors such as depreciation and taxes.)

Assume (for now) that the purchased equipment has no market value at the end of the term and that the leased equipment has no residual value at the end of the lease. In this case, the present value of the purchase option is simply the purchase price. For the lease option, you determine the present value using the following form of the PV() function:


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