Buy/Lease/Finance?

[tractor1212]

I have had many people ask me before and I always say it might be a better option to Lease or Finance instead of just buy out tractors. I have many numbers of John Deere equipment and have financed them all. It ends up being much cheaper than buying it out in full and leaves more money available for me to spend in other areas on my farm. I have used different companies, like American Capital Group and they really helped me out. You can Google any type of company and they're really great. I support it and its good info to have my friends.

Best,
Tractor1212

 

[Mark Page]

It's a tax question really. If you buy you write off the depreciation. Not sure how long you can write off farm equipment. If you lease you expense the payments and write them off. If cash is a concern lease, if you want to pay the least in the long run buy. If you finance you can also write off the interest. Your tax situation will probably make the difference.
This is an excellent question for your CPA.
Of course this only applies if you are using the equipment in a business, which a farm is. As a homeowner with some land I can't write off anything.

 

[smstonypoint]

If you consult textbooks in corporate finance, managerial finance, etc., you will find the following procedure for evaluating the buy versus lease decision for a business.* To simplify matters, assume the lease period equals the planning horizon.

1. First, using standard net present value (NPV) analysis, determine that acquiring the services of the equipment is justified; i.e., investment in the machine has a positive NPV.

2. Determine the after-tax cash flows associated with purchase of the machine over the planning horizon. These cash flows recognize the tax shield provided by depreciation.

3. Determine the after-tax cash flows associated with leasing of the machine over the planning horizon. These cash flows recognize the tax shield provided by lease payments.

4. To provide a fair comparison, adjust either the cash flows in #2 to allow for sale of the used machine at the end of the planning horizon or the cash flows in #3 to allow purchase of the used machine at the end of the planning horizon.

5. Discount the after-tax cash flows from purchasing and leasing by the after-tax cost of debt capital.

6. Select the alternative that has the lower present value.

Choosing the optimal level of debt financing for a firm would involve a discussion of optimal capital structure. As I have probably already worn out my welcome, I will pass.

Steve

* Some finer points are omitted.

 

[Tomtint]

I have some equipment that I financed for 3 years. My accountant depreciated it over the term of the loan. So in essence the asset is now a zero asset to my company and I need to replace it....dayumn I need to buy some new toys... I mean tools.