Running Head: Leasing of property as compared to purchasing of property Essay Example

  • Category:
    Management
  • Document type:
    Article
  • Level:
    Undergraduate
  • Page:
    1
  • Words:
    311

For better running of business activities within our organisation, we have leased a Toyota Salon car.

The lease period is under a contract of five years with the following varying amounts considering the depreciation of the motor vehicle which is maintained at 15% p.a. of the market value of 8571.43$ constant lease mount p.a

1st year of leasing 2,000$

Add depreciation at the end

of year 1 15/100 x 8571.43 1285.71 3285.71$

Total lease amount for year 1 3285.71$ 3285.71$

2nd year of lease 2,000$

Add depreciation at the end of year 2 1285.71

3285.71$

3rd year of lease 2,000$

Add depreciation at the end of year 3 1285.71

3285.71$

4th year of lease 2,000$

Add depreciation at the end of year 4 1285.71

3285.71$

5th year of lease 2,000$

Add depreciation at the end of year 5 3285.71$

3285.71$

For the five-year the total lease amount including depreciation amount to 16,428.55$. The market value of the vehicle is 8571.43$ which is more than half the total cost of lease the motor vehicle.

The motor vehicle under the lease agreement will pay for itself within 2.3 years.

Conclusion

Considering the total cost of leasing the motor vehicle for the five years and the market value of the motor vehicle. It is advisable to purchase the vehicle instead of leasing it to carry out the business.

Cost per annum of lease the motor vehicle = 3285.71$

Therefore cost per annum of the lease of motor vehicle = 3285.71$/12

273.81$

For the motor vehicle to pay itself, we need to calculate the number of months.

Therefore,

Market value of the motor vehicle 8571.43$

Cost per month of lease the motor vehicle 273.81$

Approximately 31.3 months

Equivalent to 2 years 7 months.

Reference

Diane, M. (2001): Customer Assistance Guide, New York, Mc-GrawHill

National Stakeholder Workshop Summary Report, (1998) Virginia, June 17-18, 1998 page 57-74