What is the Lease vs Buy Model and how does it work?
The Lease vs Buy Model compares the Net Present Value of Total Cost of Ownership for two acquisition strategies. Buying captures down payment, loan repayments, maintenance, insurance, utilities, compliance and a residual value recovery in the final year. Leasing captures the deposit, monthly payments escalated annually, and any costs not bundled into the contract. All cash flows are discounted to today's value using a combined discount + interest rate, and a cost-per-use-day metric surfaces the true productive cost of capital tied up in ownership.
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Evaluation Parameters
Buy Option
Lease Option
Insurance, registration, or maintenance not bundled into the lease.
Leasing presents a lower NPV of Total Cost of Ownership ($141,318 less, 33.2% savings) over the 5-year analysis period.
Cumulative NPV of TCO
Buy Side – Itemized Cost
| Item | Total |
|---|---|
| Down Payment (20%) | $70,000 |
| Loan Repayments (total) | $350,639 |
| Maintenance (total) | $76,558 |
| Insurance (total) | $57,418 |
| Utilities / Fuel (total) | $262,484 |
| Compliance / Registration | $43,747 |
| Residual Value Recovery | -$105,000 |
Annual NPV Comparison
| Period | Buy NPV | Lease NPV |
|---|---|---|
| Year 0 | $70,000 | $24,000 |
| Year 1 | $135,436 | $95,894 |
| Year 2 | $121,803 | $87,408 |
| Year 3 | $109,566 | $79,672 |
| Year 4 | $98,579 | $72,622 |
| Year 5 | $31,724 | $66,195 |
Key Decision Drivers
Strategic Impact Analysis
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