BIZOMAT Tools · Business
Buy or Lease
Should you buy or lease this equipment?
Compares buying and leasing an asset in present-value terms over the same period.
Open the calculatorRuns in your browser. No account needed.
How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Purchase price | $ | Purchase price including delivery and installation |
| Expected resale value | $ | Expected resale value at the end of the period (dealer or auction evidence) |
| Annual ownership maintenance | $ | Annual maintenance and insurance when owned |
| Monthly lease payment | $ | Monthly lease payment |
| Lease upfront / fees | $ | Lease establishment fees and upfront payments |
| Comparison period | years | Comparison period (usually the lease term) |
| Discount rate (your approved rate) | % | Your cost of capital or approved discount rate |
What each input means
Open an input to see what it is, its units, the worked example and the common mistakes, with a small diagram.
What this means: Purchase price
- What it is
- The full cost of buying the asset outright today, including delivery, installation and commissioning.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $60000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Adds directly to the present value of buying.
- Get it right
- Include everything needed to put it into use, not just the list price.
What this means: Expected resale value
- What it is
- What you expect to sell the asset for at the end of the comparison period, based on dealer quotes or auction results for similar used equipment.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $15000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Discounted back and subtracted from the buy cost, so a higher resale value favours buying.
- Get it right
- Use evidence for the age and condition expected; optimistic resale values favour buying.
What this means: Annual ownership maintenance
- What it is
- The yearly cost of maintaining and insuring the asset when you own it.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $3000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Discounted over the period and added to the present value of buying.
- Get it right
- The tool assumes the lease does not include maintenance; if it does, this still applies only to buying.
What this means: Monthly lease payment
- What it is
- The regular monthly payment under the lease agreement.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $1500 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Discounted monthly over the period and added to the present value of leasing.
- Get it right
- Check whether the quoted payment includes GST, and compare on the same basis as the purchase price.
What this means: Lease upfront / fees
- What it is
- Payments due when the lease starts: establishment fees, documentation charges and any advance or deposit payments.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $3000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Adds directly to the present value of leasing.
- Get it right
- Include end-of-lease fees here too if they are known.
What this means: Comparison period
- What it is
- The number of years over which buying and leasing are compared, usually the lease term.
- Units and format
- Enter a number in years: years. The form accepts 1 years to 20 years.
- Example
- The form opens with 4 years as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- More years add more lease payments and maintenance and discount the resale value further.
- Get it right
- Whole years are used; a decimal is rounded. The resale value should match this age.
What this means: Discount rate (your approved rate)
- What it is
- The yearly rate used to convert future payments into today’s money, reflecting your cost of capital. Finance usually sets it.
- Units and format
- Enter a number in %: percent: the number is read as a percentage, so type 8 for 8 %. The form accepts 0% to 50%.
- Example
- The form opens with 8% as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher rate reduces the present value of later lease payments, maintenance and the resale value.
- Get it right
- Type the percentage itself (8 for 8 %). The tool converts it to a monthly rate for lease payments.
Method and formulas
- Buy PV = price + maintenance × annuity factor − residual ÷ (1 + r)ⁿ
- Lease PV = upfront + monthly payment × monthly annuity factor (monthly rate from the annual rate)
Limitations
- Pre-tax; ignores depreciation, interest deductibility and accounting treatment
- Assumes maintenance is not included in the lease
Typical uses
- Equipment, vehicle and machinery acquisitions
Who it is for
- Business owners
- Finance managers
What you get
- BUY or LEASE
- Present value of each option
- Undiscounted and present-value table
Interpreting the result
- A small PV difference means flexibility and risk should decide
References
- AASB 16 Leases (accounting treatment)
- Brealey R., Myers S. and Allen F., Principles of Corporate Finance (McGraw-Hill), leasing
BIZOMAT tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.