Compare the relative advantages of lease versus purchase for a new vehicle You will need to find out the terms that are commonly available for leases and for loans for vehicle purchases Suitable information sources might be advertisements or direct contact with lessors, lenders, or vendors Note any differences in credit requirements between leasing and purchasing, but assume that you will qualify for whichever financing method you prefer You should make sure that the same period of time is chosen for the lease or the loan, typically three to five years The minimum information that you will need will include the monthly payment, the initial down payment or deposit required, and the value and disposition of the vehicle at the end of the loan lease You should try to determine the effective interest rates involved in any calculations Be aware that there may be hidden administrative costs that create a difference between the advertised interest rate and the effective rate For vehicles, the effective purchase price may be different for a lease than for a loan and may be different from a cash purchase price when promotional rates are involved You will also need to be clear about any terms for evaluating the condition of the vehicle at the end of the lease, and your responsibility for the financial impact of that evaluation Any option or obligation to purchase the vehicle at the end of the agreement, or to guarantee the value of the vehicle, will be part of the assessment and must be reported In your analysis, assume that Any deposit or down payment is borrowed at a rate of 6 percent, for the term of the lease or loan In other words, you have no free cash available at the beginning for the vehicle Any interest payment or lease payment qualifies as an expense for tax purposes The business that requires the vehicle is profitable and can use the expense to reduce taxes The vehicle will be used only for business purposes no personal use Any Capital Cost Allowance (on purchases) is claimed as an expense at the maximum allowable rate for the class of the asset involved The business that requires the vehicle is profitable and can use the expense to reduce taxes For the purpose of the assignment, the value of the vehicle should be approximately $27,000 before taxes HST will be paid on the purchase or on the lease payments At the end of the loan or lease, the vehicle is returned to the lessor or, if purchased, is sold for an amount that matches any agreed residual value If no residual value was agreed, and you cannot determine the assumptions used for the lease calculation , use your best estimate of the resale value at the end of the term The warranty is the same for a lease or a purchase No maintenance is included in the deal, and maintenance expense is not part of this calculation If you base your analysis on any promotional rates, for either a lease or a loan, be sure that you use the terms from the same source at the same time when you make your comparison Calculate the total cost of the availability of the vehicle, over the period of the lease or loan, including HST but before income taxes Do not include operational costs such as insurance, fuel, or maintenance and repairs These costs will not depend on the lease purchase decision Note the number of kilometers allowed in the lease agreement, and any charge for excess kilometers Base your cost of availability on the number of kilometers that you estimate to be needed for your driving patterns (Remember that this is a business only vehicle ) Calculate the expense deduction that will be allowable for tax purposes as a result of lease payments, taxes (HST), interest, and or Capital Cost Allowance because of the lease or purchase Compare the total costs (before income tax) of the two methods of financing, and comment on any other differences that you discover that would influence your decision to lease or to borrow and purchase Comment on the timing of the cash flow as well as on the total expense Evaluation The evaluation of this assignment will consider the completeness of the information presented, the detail and usefulness of the comparative analysis presented, and the clarity of the explanations of the differences between leasing and purchasing for the examples chosen The overall impression of the presentation will also be evaluated Assume that you have been asked to prepare this information as a report to someone who intends to provide a vehicle for your business use and wants you to evaluate the costs involved in leasing and purchasing

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Compare the relative advantages of lease versus purchase for a new vehicle. You will need to find out the terms that are commonly available for

Compare the relative advantages of lease versus purchase for a new vehicle.

You will need to find out the terms that are commonly available for leases and for loans for vehicle purchases. Suitable information sources might be advertisements or direct contact with lessors, lenders, or vendors. Note any differences in credit requirements between leasing and purchasing, but assume that you will qualify for whichever financing method you prefer.

You should make sure that the same period of time is chosen for the lease or the loan, typically three to five years.

The minimum information that you will need will include the monthly payment, the initial down payment or deposit required, and the value and disposition of the vehicle at the end of the loan/lease. You should try to determine the effective interest rates involved in any calculations. Be aware that there may be hidden administrative costs that create a difference between the advertised interest rate and the effective rate. For vehicles, the effective purchase price may be different for a lease than for a loan and may be different from a cash purchase price when promotional rates are involved.

You will also need to be clear about any terms for evaluating the condition of the vehicle at the end of the lease, and your responsibility for the financial impact of that evaluation.

Any option or obligation to purchase the vehicle at the end of the agreement, or to guarantee the value of the vehicle, will be part of the assessment and must be reported.

In your analysis, assume that

Any deposit or down payment is borrowed at a rate of 6 percent, for the term of the lease or loan. In other words, you have no free cash available at the beginning for the vehicle.

Any interest payment or lease payment qualifies as an expense for tax purposes. The business that requires the vehicle is profitable and can use the expense to reduce taxes. The vehicle will be used only for business purposes no personal use.

Any Capital Cost Allowance (on purchases) is claimed as an expense at the maximum allowable rate for the class of the asset involved. The business that requires the vehicle is profitable and can use the expense to reduce taxes.

For the purpose of the assignment, the value of the vehicle should be approximately $27,000 before taxes. HST will be paid on the purchase or on the lease payments.

At the end of the loan or lease, the vehicle is returned to the lessor or, if purchased, is sold for an amount that matches any agreed residual value. If no residual value was agreed, and you cannot determine the assumptions used for the lease calculation , use your best estimate of the resale value at the end of the term.

The warranty is the same for a lease or a purchase. No maintenance is included in the deal, and maintenance expense is not part of this calculation.

If you base your analysis on any promotional rates, for either a lease or a loan, be sure that you use the terms from the same source at the same time when you make your comparison.

Calculate the total cost of the availability of the vehicle, over the period of the lease or loan, including HST but before income taxes. Do not include operational costs such as insurance, fuel, or maintenance and repairs. These costs will not depend on the lease/purchase decision.

Note the number of kilometers allowed in the lease agreement, and any charge for excess kilometers. Base your cost of availability on the number of kilometers that you estimate to be needed for your driving patterns. (Remember that this is a business-only vehicle.)

Calculate the expense deduction that will be allowable for tax purposes as a result of lease payments, taxes (HST), interest, and/or Capital Cost Allowance because of the lease or purchase.

Compare the total costs (before income tax) of the two methods of financing, and comment on any other differences that you discover that would influence your decision to lease or to borrow and purchase. Comment on the timing of the cash flow as well as on the total expense.

Evaluation:

The evaluation of this assignment will consider the completeness of the information presented, the detail and usefulness of the comparative analysis presented, and the clarity of the explanations of the differences between leasing and purchasing for the examples chosen. The overall impression of the presentation will also be evaluated. Assume that you have been asked to prepare this information as a report to someone who intends to provide a vehicle for your business use and wants you to evaluate the costs involved in leasing and purchasing.