What factors should be considered when making the decision to lease or buy equipment?

Organizations are faced with making the decisions when they need buildings and other equipment (Ruegg & Marshall, 1990).This is one of the fundamental decisions that has to be made as this could have a long lasting impact on the financial resources of a company. When a lease is made, some amount of monthly rent may be payable. On the other hand when something is purchased, it becomes the property of the purchaser. There are different situations where the purchase may be better than leasing or vice versa.

When a decision to lease or buy is required, there should be an analysis of what the operating costs of both options may be. The value of the asset at the time of purchase and after it is used is also taken into consideration. For example if the amount of money that is spent on a car for a certain project is more than if the car is rented and the salvage value of the car would be low, then renting the car is better than buying the car.