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PC Purchasing Finance Considerations
There are several options available when looking to purchase replacement PC units. They are;
~ Outright Purchase
~ Hire Purchase
~ Finance Lease
~ Operating Lease
We shall now explore the benefits and drawbacks of each option in turn.
Outright Purchase
This has been the traditional method of computer equipment purchase for many years.
The benefits are;
~ All equipment is wholly owned by the company.
~ Only one initial payment is made.
~ The equipment is an Asset.
The drawbacks include;
~ A large initial payment is required.
~ Although the equipment is an asset, it's value will decrease to zero after three years. (a worthless asset?)
~ End of life disposal must be undertaken by the company. This may prove difficult when complying with Environmental regulation.
~ A large capital investment may be required.
Hire Purchase
Another traditional purchase option.
The advantages are;
~ All equipment can be wholly owned by the company (as an asset) after
the repayment term has been completed. Or it can be returned.
~ Repayments are not subjected to VAT.
~ You get the technology you need - now!
The disadvantages are;
~ Equipment is not owned as an asset until the end of the lease term at
which point it's asset value is usually zero (base on a 3 year term).
~ The overall cost is high due to interest charged on the purchase price
over the repayment period.
~ End of life disposal is the responsibility of the owner, as is environmental
compliance on disposal.
Finance Lease
This is a traditional lease option.
The benefits are;
~ You get the technology you need - Now!
~ The price is fixed for the lease term.
~ The equipment can be returned at the end of the lease, preventing the
ownership of an asset with zero value.
~ Payments are structured to cash flow (working capital is conserved)
~ Fixed term (costs are spread over the useful life of the equipment)
~ At the end of the lease the equipment can be replaced, avoiding obsolescence.
The drawbacks are;
~ The overall cost is high.
~ Does not include software
Operating Lease
This is a pure lease option.
The advantages are;
~ Payments are structured to cash flow (working capital is conserved)
~ Payments are generally 100% tax deductible (when treated as a revenue
item)
~ Normally treated as 'off balance' sheet
~ Fixed term (costs are spread over the useful life of the equipment)
~ The lease provider takes the residual value risk
~ You get the technology you need - Now!
~ Equipment is managed over its useful life
~ End of life disposal and environmental compliance undertaken by the
lease provider (reducing the cost of ownership)
~ At the end of the lease the equipment can be replaced, avoiding obsolescence.
The disadvantages are;
~ The equipment is not owned as an asset.