Analyzing Lease vs. Buy Decisions Simulation: Bonnesante Research

Introduction

Everyday companies are faced with the decision of whether to lease or to buy when acquiring assets. By being able to calculate the best decision for both options, a company will be able to make the most profitable choice. However some tough questions will need to be answered like what is the expected life of the asset, what is the rate of obsolescence, and what will be the impact of the assets purchase on the balance sheets and cash flow? In this simulation paper I will discuss the advantages of buying vs. leasing as it pertains to these questions.

Analyzing Lease vs. Buy Decisions Simulation Summary

Bonnesante Research is a small biotech company based out of Irvine, California that works on research in the anti-infective drug division. The company is faced with three major decisions based on asset acquisitions and financing which requires the evaluation of whether to lease or buy.

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In the first situation, Bonnesante has to choose the best way of acquiring a Mainframe computer to support advanced analytical software. In this type of situation, I felt it was best for the company to lease the computer rather than purchase it. I selected the option of leasing the computer for 18 months with no down payment. The reason for this is because like all technology and software, depreciation is always a factor and could become obsolete very quickly. In 18 months, the company will have the opportunity to upgrade or extend the lease if need be; and with the low payments and no down payment, the company will have more cash flow to make other decisions.

In the second situation, Bonnescate is in need of an advanced digital spectrometer to keep up with breakthroughs in its R & D program. This kind of tool costs about two...