Describe factors Caledonia must consider if they were doing a lease versus buy Sense Caledonia is thinking of introducing a new product, the company must decide whether to lease or buy. Caledonia is in the 34 percent marginal tax bracket with a 15 percent required rate of return on cost of capital, the new project being a fad will only be a for five years. When deciding to lease, Caledonia must consider how reducing out of pocket cost could benefit the company. Though leasing would mean they do not fully own the product. When leasing, Caledonia must consider the rates that will be used in the cost of leasing.
The company’s credit rating will determine if they will receive a good rate on their lease. Another factor is will the company have enough income to pay the lease as necessary. Many investors consider having current paycheck stubs providing proof that the expenses will be covered. In most cases the lease is not up until the product expenses are paid in full. Until expenses are paid in full the leasing company owns the product. Another factor they must consider is the income budget that determines how much product the company will be able to receive.
The company should make sure the products have values and is able to provide sufficient income. The company should always consider having a back-up plan in case a payment is missed. When buying a product, the company has the option to own it. The advantage of buying a product is that they are brand new in most cases, and have the best value offered. In many cases, the best prices offered too. For example, after purchasing a product in a store, the cashier gives the customer a receipt. After a receipt is given the product is now owned.
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