Simulation: Analyzing Lease vs. Buy Decisions

Essay by TDMiller98University, Master'sA+, January 2007

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Bonnesante' Research is a small start up company out of Irvine, CA. It is often challenging for small start-up companies to finance equipment needed for the day to day operations of their company, but often more challenging to determine whether to lease or purchase such equipment.

One of the goals was to evaluate the different lease and loan options for the acquisition of a Mainframe Computer and select the one with the lowest present value of cash outflows. It was important to choose the option that would return higher outflows and have the lowest present value of cash outflows. This simulation was helpful because businesses need to think through all of the options and consequences of each decision made because one decision, by one person can seal the fate for the entire company.

In this simulation, I learned that it sometimes takes several key people in a company's organization to make the best decision.

There were three people involved in offering their opinions and expertise in this simulation. These people included the CEO, COO and a consultant. The CEO was involved in top management stints with a series of pharmaceutical majors in the past before he decided to start this venture. He had a reputation for having a keen eye for costs and constantly looked for ways to minimize unnecessary expenditures. Next, the COO was a start-up specialist having been part of the founding team of many successful ventures. He was very hands-on and unafraid of making decisions in uncertain environments. Last, a consultant that carried an expertise in operations and finance. She had a history of structuring multi-million dollar lease instruments for clients.

Each of these three people used their experiences and expertise as tools to help the company make the best decisions. This was an important concept...