Lease vs.purchase Education Replay

Transcription

1 Lease vs.purchase Education Replay

2 Disclaimer This [lease/purchase analysis tool] is provided to you solely as a reference tool and neither International Business Machines Corporation (IBM) nor IBM Credit LLC (IBM Credit) is providing to you, or intends to provide or offer tax, accounting or legal advice. You are advised not to rely on this analysis. You are responsible for making your own analysis including: (i) accessing the adequacy and accuracy of the variables input to the model and (ii) determining whether the model contains all of the appropriate factors that may be relevant to your lease/purchase analysis. IBM and IBM Credit make no guarantee or representations with respect to the analysis, the analysis tool or the applicability of this analysis to your business or accounting methods. You should consult with your own financial advisors. Any tax or accounting treatment decisions made by you or on your behalf are solely your responsibility. 2

3 The bottom line IBM Global Financing offers financial solutions that are a better alternative to purchase Less expensive Provide more flexibility than purchase Avoid end of life disposal risk Let customer focus on business value of IT rather than IT asset issues 3

4 Lease vs purchase analysis Lease is a form of debt Does the firm feel it has available debt capacity? Two basic questions in lease vs purchase analysis Lease vs cash from operations Lease vs other forms of debt Technique used: Primary-Net present value of after-tax cash flows Which alternative maximizes the firm s value? Secondary-Period cash flow considerations 4

5 Lease vs purchase analysis questions Customer expected salvage value at end of useful life 5% a safe estimate for 36 month useful life Incremental borrowing rate What interest rate can it borrow at for comparable debt? Secured, term loan Not short term, line of credit Bottom line: Leasing is almost always more attractive than purchase for a 3 year useful life IBM Global Financing Residual Value position vs retail fair market value of asset 5

6 Lease vs purchase common misconceptions Lower interest rates make leasing unattractive Leasing is actually more attractive in a low interest rate environment Lease rates are lowered in a low interest rate environment Time value of money effect for MACRS reduced due to low interest rates Companies can expense IT purchases on their taxes IRS mandates all IT purchases are depreciated on a 5 year schedule Companies can expense IT assets on their financial books, if they consider them to have <1 year useful life. Financial accounting treatment does not affect after tax cash flow based analysis Leasing is more attractive for AMT taxpayers The effect is minimal with the new tax code 6

7 Addressing leasing objections Cash is free Cash has an opportunity cost-cash is limited Our interest rate is lower than IBM Global Financing s interest rate Fair Market Value leasing offers customers a strategic advantage Less expensive than purchase Provides more flexibility and less risk than ownership Can finance with low-cost short-term debt Short-term debt for short-term uses (working capital) Debt holder oversight Rising interest rates 7

8 IBM Global Financing lease vs purchase tool Automates lease vs purchase analysis using industry-standard model Net Present Value after-tax cash flows analysis Period cash flows US and Canadian versions are now available on the IBM Global Financing PartnerWorld website /partnerworld/financing 8

9 Lease vs purchase actual numbers Lease rate Purchase 36 month B lease P series $63K $55K(14.8% better) Assumptions Best credit 7% borrowing rate 5% salvage value This [lease/purchase analysis tool] is provided to you solely as a reference tool and neither International Business Machines Corporation (IBM) nor IBM Credit LLC (IBM Credit) is providing to you, or intends to provide or offer tax, accounting or legal advice. You are advised not to rely on this analysis. You are responsible for making your own analysis including: (i) accessing the adequacy and accuracy of the variables input to the model and (ii) determining whether the model contains all of the appropriate factors that may be relevant to your lease/purchase analysis. IBM and IBM Credit make no guarantee or representations with respect to the analysis, the analysis tool or the applicability of this analysis to your business or accounting methods. You should consult with your own financial advisors. Any tax or accounting treatment decisions made by you or on your behalf are solely your responsibility. 9

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14 Summary Fair Market Value leases are almost always better for the customer than purchase Lower economic cost Greater flexibility Less technology and financial risk 14