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Equipment Lease Analyser

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Equipment Lease Analyser Powered By Docstoc
					Welcome to the Equipment Lease Analyser Menu Page

The Equipment Lease Analyser compares the the cost of leasing equipment to purchasing. This can be done by using the simple calculator or the cashflow analyser. The other options worksheet compares the cost of buying used and repairing equipment. Developed by Rob Gamble Finance and Business Structures Program Lead Ontario Ministry of Agriculture Food and Rural Affairs, Guelph email: rob.gamble@omafra.gov.on.ca January 15, 2001

Simple Lease Calculator

Simple Cash Based Leasing vs Buying
Lease Option Cost of Equipment Total Lease Payments per Year Length of Lease Total Payments on Lease Down Payment or Trade Total Cash Invested in Lease Tax Reduction from Leasing Expense ( using tax rate below ) Total After Tax Cost of Lease Purchase Option Cost of Equipment Down Payment of Trade Loan Details Loan Amount Annual Interest Rate Length of Loan (years) Number of Payments per Year Compounding Payments per Year Loan Payment Total Loan Payments per year Total Interest Payments Total Loan Payments Fair Market Value of asset at end of comparrison period Total Cash Investment in Purchase Tax Calculations Income Tax rate Capital Cost Allowance Rate for the equipment Depreciated Value of equipment (using CCA rates) Interest tax deduction Depreciation tax deduction Recapture on equipment if sold at the end of end of period Tax on recapture Total After Tax Cost of Purchase Leasing is less expensive by: Average Increased Cash Flow per year by Leasing Average Cost Saving per year by Leasing $ $ $ $ $ $ $ $ $ 100,000 14,000 4 56,000 56,000 22,960 33,040 100,000 100,000 8 4 1 2 30,300 30,300 21,199 121,199 50,000 71,199 41% 30% 29,155 8,691 29,046 20,845 8,546 42,007 8,967 16,300 2,242

$ $ $ $ $ $

$ $ $ $ $ $ $

Page 2

Best Hourly Option For a Lease
This sheet allows you to quickly determine the best annual hour selection to choose when considering an equipment lease. Acquire the appropriate information from your dealer and enter it into the yellow cells.

Contract hours per year Annual Payment Charge for extra hours per hp Equipment Horsepower

Lease 1 400 $15,000

Lease 2 600 $16,500 $0.1067 225

Breakeven Hours

462

Implications If you think you will use the equipment for less than 462 hours per year the 400 hour lease is less expensive than the 600 lease.

B 25 Buy the 150 hp or larger Tractor 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

C

D

E

F

G

H

I

J

K

L

M

N

O

List Price Purchase Price Salvage Value Salvage Value Adjustment Factor Down Payment Trade-in value Loan Information Loan Needed Annual Interest Rate % Length of Loan (Years) Number of Payments per Year Compounding Periods per Year Loan Fees Years to Sale Hours per year Tax Info
1

$100,000 $100,000 $58,273 1.00 $20,000 $0 $100,000 8.00% 4 12 2 $0 4 500

Lease the 150 hp or larger Tractor Lease Base Price End of Lease Purchase Option Estimated value at end of lease Down Payment, if purchased and financed Loan needed if financed purchase option Lease term (years) Annual Payment Contract hours per year Actual hours/year used Charge for extra hours ($/hp hour) Equipment Horsepower Property tax/year if paid by farmer Excercise Purchase Option? (yes or no) Finance purchase option (yes or no)

$100,000 $50,000 $58,273 $0 $50,000 4 $14,000 400 400 $0.12 200 $0 no no 5 8.0% $0

42 Beginning Tax Basis 43 Capital Cost Allowance (CCA) 44 45 46 47 48

Marginal Tax Rate2 Capital Gains Tax Rate Discount factor Annual Inflation
1 2

$100,000 Term of Loan, if financed (years) 30% Interest rate 41% Loan Origination Fee 28% 6% 3%

Note: ignores any depreciation recapture on trade-in.

49 The marginal is only income tax; do not include self-employment tax. 50 51 Summary of Lease Analysis 52 53 54 55 56

Cash Flow Summary Purchase Net Cash Flow Lease Net Cash Flow Difference (Purchase - Lease)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Lease has lower net present value of cash expenditures than purchase by $13802 ($20,000) ($23,072) ($18,767) ($21,904) $51,062 ($11,938) ($14,000) ($8,260) ($8,260) ($8,260) $5,740 $0 ($6,000) ($14,812) ($10,507) ($13,644) $45,322 ($11,938)

Year 7 $0 $0 $0

Year 8 $0 $0 $0

Year 9 $0 $0 $0

Year 10 $0 $0 $0

Year 11 $0 $0 $0

Total ($44,619) ($33,040) ($11,579)

NPV ($45,335) ($31,532) ($13,802)

57 58 Calculations for Purchase of Equipment 59 Purchase Cashflow 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76

77 78 79 80 Calculations for Lease of Equipment 81 Lease Expense and Cashflow 82 83 84 85 86

Year 1 2 3 4 5 6 Cash Out Purchase Payment $20,000 $29,222 $29,222 $29,222 $29,222 $0 Interest $0 $0 $0 $0 $0 Principle $29,222 $29,222 $29,222 $29,222 $0 Early Loan Payoff Due to Sale $0 $0 $0 $0 ($16,889) $0 Capital Gains Tax on Sale $0 $0 $0 $0 $0 Depreciation Recapture $0 $0 $0 $0 $11,938 Total Cash Out $20,000 $29,222 $29,222 $29,222 $12,333 $11,938 Deductions and Cash In Deductions are listed in the year they are taken rather than the year they are incurred. Sale of Equipment $0 $0 $0 $58,273 $0 Value of Tax Deductions $6,150 $10,455 $7,319 $5,123 $0 Depreciation Deduction $15,000 $25,500 $17,850 $12,495 $0 Interest $0 $0 $0 $0 $0 Capital Loss Tax Deduction $0 $0 $0 $0 $0 Total Deductions and Cash In $0 $6,150 $10,455 $7,319 $63,396 $0 Net After Tax Cash Flow ($20,000) ($23,072) ($18,767) ($21,904) $51,062 ($11,938) Note: repairs and insurance are assumed equal under all scenarios

7 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

8 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

9 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

10 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

11 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total $136,889 $0 $116,889 ($16,889) $0 $11,938 $131,938 $58,273 $29,046 $70,845 $0 $0 $87,319 ($44,619)

87 88 89 90 91 92 93 Capital Gains Tax on Sale 94 Depreciation Recapture 95 Total Cash Out 96 97 98 99 100 101 102 103 104 105

Year 1 Lease Payment - Base $14,000 Lease Payment - extra hours $0 Property tax, if paid by farmer $0 Tax Deductions $0 Net Lease Payment $14,000 Lease Cashflow when Purchase Option Exercised Purchase Payment $0 Interest $0 Principle $0 Early Loan payoff due to sale $0

Year 2 $14,000 $0 $0 $5,740 $8,260 $0 $0 $0 $0 $0 $0 $0

Year 3 $14,000 $0 $0 $5,740 $8,260 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($8,260)

Year 4 $14,000 $0 $0 $5,740 $8,260 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($8,260)

Year 5 $0 $0 $0 $5,740 ($5,740) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $5,740

Year 6 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 7 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 8 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 9 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 10 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Year 11 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total $56,000 $0 $0 $22,960 $33,040 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 ($33,040)

$0

Deductions and Cash In Sale of Equipment $0 Value of Tax Deductions $0 Depreciation Deduction $0 Section 179 Deduction $0 Interest and Prop Tax Deduction $0 Capital Loss Tax Deduction $0 Total Deductions and Cash In $0 $0 Net After Tax Cash Out $0 $0 Lease and Purchase Net Flow ($14,000) ($8,260) 106 Note: repairs and insurance are assumed equal under all scenarios

Prepared by Ray Massey, 8/12/2008

Lease vs Purchase of Equipment

Purchase
$60,000

Lease

$50,000

$40,000

$30,000

Net Cash Flow

$20,000

$10,000

$0

($10,000)

($20,000)

($30,000) 1 2 3 4 5 6 7 8 9 10 11

Year

Machinery Cost Calculator
Type of Machine
New Price (or Value of your current) Value of the machine on future sale (end of lease) Trade in Value of your current machine Life of the new machine (years) Hours on machine when purchased Acres per Year Hours per year / and Total Hours Accumulated Total Hours over Life Rate of Work (acres per hour) Optional entry Fuel Cost per litre Fuel Use per Hour (litres) Annual Repair Costs Total Repairs over machines life Repairs as a % the purchase price Down Payment Loan Amount Required Interest Expense (total) Annual Loan Payments (or Lease) Discount rate (if you put your money elsewhere) Annual Fixed Costs Average Depreciation per year Interest on Your Investment (income for custom) Insurance and Housing Total Fixed Costs Annual Operating Costs Fuel and Lubricants Repairs Labour Total Operating Costs Total Annual Costs Total Annual Costs Per Acre Annual Cash Costs Annual Payments on Loan Down Payment X Interest Rate Total Operating Costs Total Pre Tax Cash Costs Cash Costs Per Acre New Used Repair Lease Custom 175,000 100,000 35,000 175,000 56,000 25,000 15,000 65,000 35,000 35,000 35,000 35,000 5 4 3 5 0 2,000 2,000 1,200 1,200 1,200 1,200 1,200 286 286 286 286 1429 3,143 2,857 1,429 4.2 4.2 4.2 4.2 New Used Repair Lease Custom 0.50 0.50 0.50 0.50 Rate 40 40 40 40 per acre 3,255 2,188 10,500 3,255 34.00 16,275 8,750 31,500 16,275 9.3 5.0 18.0 9.3 5,000 5,000 0 5,000 135,000 60,000 28,618 12,719 40,904 18,179 0 29,325 6% 6% 6% 6% 6% New Used Repair Lease Custom 23,800 18,750 6,667 22,000 6,300 4,050 1,050 6,300 2,100 2,625 1,500 525 2,625 32,725 24,300 8,242 30,925 6,571 3,255 0 9,826 42,551 35.46 $ 6,571 2,188 0 8,759 33,059 27.55 $ 6,571 10,500 0 17,071 25,313 21.09 $ 6,571 3,255 0 9,826 40,751 33.96 $

$ New

38,700 32.25

After Tax Calculations
Tax Rate Capital Cost Allowance Rate Tax Deductable Expenses Average Capital Cost Allowance per year Interest Expense per Year (average) Fuel, lubricants and repair expenses Lease Payments Custom Work Expense Total Tax deductable expenses Tax Reduction Per acre tax reduction After Tax Cost Per Acre

Used Repair Lease Custom 40,904 18,179 29,325 300 300 0 300 9,826 8,759 17,071 9,826 51,030 27,238 17,071 39,451 40,800 $ 42.53 $ 22.70 $ 14.23 $ 32.88 $ 34.00 New Used Repair Lease Custom 0.41 0.41 0.41 0.41 0.41 30% 30% 30% $ 27,857 5,724 9,826 $ 17,711 3,180 8,759 $ 6,808 17,071

9,826 29,325 39,151 $ 16,052 13.38 19.50 $

40,800 40,800 16,728 13.94 20.06

$

$

43,407 $ 17,797 14.83 27.69 $

29,650 $ 12,156 10.13 12.57 $

23,879 $ 9,790 8.16 6.07 $


				
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