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Methodology

Lease vs Buy Equipment Planner methodology

Compare the present value of user-entered lease and purchase cash flows, including purchase residual value.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Nominal option cost
optionNominalCost = datedCashCosts + terminalDisposalCost − terminalResidualValue

Where

datedCashCosts
Sum of dated option cash costs (currency units)Source: User assumption
terminalDisposalCost
Terminal disposal cost (currency units)Source: User assumption
terminalResidualValue
Terminal residual value (currency units)Source: User assumption
optionNominalCost
Nominal option cost (currency units)Source: Calculated output
Nominal cost difference
nominalLeaseMinusBuy = leaseNominalCost − buyNominalCost

Where

leaseNominalCost
Lease nominal cost (currency units)Source: Calculated output
buyNominalCost
Buy nominal cost (currency units)Source: Calculated output
nominalLeaseMinusBuy
Nominal lease minus buy (currency units)Source: Calculated output
Present value of each cash flow
presentValue = amount ÷ (1 + annualDiscountRate)^(daysFromFirstCashFlow ÷ dayCountBasis)

Where

discountRatePercent
Annual discount rate (percentage points)Source: User assumption
amount
Dated cash-flow amount (currency units)Source: User assumption
annualDiscountRate
Annual discount rate (decimal rate)Source: User assumption
daysFromFirstCashFlow
Days from the first cash flow (days)Source: User assumption
dayCountBasis
Discounting day-count basis (days per year)Source: User assumption
presentValue
Present value of one cash flow (currency units)Source: Calculated output
Present-value cost difference
presentValueLeaseMinusBuy = leasePresentValueCost − buyPresentValueCost when discounting is enabled

Where

leasePresentValueCost
Lease present-value cost (currency units or unavailable)Source: Calculated output
buyPresentValueCost
Buy present-value cost (currency units or unavailable)Source: Calculated output
presentValueLeaseMinusBuy
Present-value lease minus buy (currency units or unavailable)Source: Calculated output
presentValue
Present value of one cash flow (currency units)Source: Calculated output
Cumulative cash used
cumulativeCashUsed(date) = priorCumulativeCashUsed + cashFlowsOnDate + terminalAdjustment

Where

terminalDate
Terminal comparison date (ISO calendar date)Source: User assumption
date
Cash-flow date (ISO calendar date)Source: User assumption
cashFlowsOnDate
Cash flows on the date (currency units)Source: User assumption
terminalAdjustment
Terminal residual or disposal adjustment (currency units)Source: User assumption
priorCumulativeCashUsed
Prior cumulative cash used (currency units)Source: Calculated output
cumulativeCashUsed
Cumulative cash used (currency units)Source: Calculated output
Peak cash use
peakCashUse = max(0, cumulativeCashUsed)

Where

cumulativeCashUsed
Cumulative cash used (currency units)Source: Calculated output
peakCashUse
Peak cash use (currency units)Source: Calculated output
max
Maximum operator (operator)Source: Calculated output
Lower nominal cost option
lowerNominalCostOption = lease when nominalLeaseMinusBuy < 0; buy when > 0; otherwise equal

Where

leaseNominalCost
Lease nominal cost (currency units)Source: Calculated output
buyNominalCost
Buy nominal cost (currency units)Source: Calculated output
nominalLeaseMinusBuy
Nominal lease minus buy (currency units)Source: Calculated output
lowerNominalCostOption
Lower nominal cost option (decision state)Source: Calculated output
optionNominalCost
Nominal option cost (currency units)Source: Calculated output
Lower present-value cost option
lowerPresentValueCostOption uses the sign of presentValueLeaseMinusBuy, or remains unavailable when discounting is disabled

Where

leasePresentValueCost
Lease present-value cost (currency units or unavailable)Source: Calculated output
buyPresentValueCost
Buy present-value cost (currency units or unavailable)Source: Calculated output
presentValueLeaseMinusBuy
Present-value lease minus buy (currency units or unavailable)Source: Calculated output
lowerPresentValueCostOption
Lower present-value cost option (decision state or unavailable)Source: Calculated output
presentValue
Present value of one cash flow (currency units)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows below come directly from the registered engine and visible default fixture.

Calculation and outputs

Example

The worked rows below come directly from the registered engine and visible default fixture.

Lease nominal cost
38,500 currency units
Buy nominal cost
35,000 currency units
Nominal lease minus buy
3,500 currency units
Lease peak cash use
38,500 currency units
Buy peak cash use
40,000 currency units
Present-value comparison
Not included until discounting is enabled
Lower nominal cost option
buy
Lower present-value cost option
Not available until discounting is enabled

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

Present value makes cash timing comparable but remains sensitive to the entered residual value.

3. Validation and boundary checks

  • Each option must contain at least one uniquely identified, valid ISO-dated cash flow.
  • No cash flow may occur after the terminal date.
  • Cash costs, residual value, disposal cost and optional discount rate must be finite and non-negative.
  • The present-value outputs remain unavailable when discounting is not enabled.

4. Assumptions and source classification

  • All balances, rates, timing and coverage thresholds are user-supplied records or explicit assumptions.
  • No lender covenant, market rate, policy threshold or future cash flow is inferred.
  • Nominal cost remains the primary comparison; present value is an optional second view.
  • Residual values reduce terminal cost and disposal costs increase terminal cost.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model excludes lender fees, taxes, covenant definitions and lender-specific credit assessments.
  • It does not replace accounting, tax, legal or financial advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the Lease vs Buy Equipment planner and methodology.

Related reading

Guides to interpret the decision and its assumptions.

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