"If we buy," Alex explained, "we are betting $3 million that EV batteries won't double in efficiency by 2030. If we lease, we pay a small premium for the right to walk away and upgrade when the tech improves."
Alex mapped out the purchase price, the tax savings from depreciation, and the estimated salvage value (the "leftover" cash when they sell the vans later), all discounted at the company's after-tax cost of debt.
Alex started with the purchase model. If Midwest Logistics bought the vans outright for $3 million, they’d get the . Under current tax laws, they could front-load the depreciation, reducing their taxable income significantly in the first few years. lease vs buy analysis corporate finance
Sarah looked at the NAL calculation. The lease was slightly more expensive in a vacuum, but it saved the warehouse project. "Flexibility is an asset we can't see on the balance sheet," she admitted.
Alex opened Excel to calculate the .
Midwest Logistics signed the lease. Alex saved the cash, the warehouse got built, and the fleet stayed green.
Next, Alex looked at an operating lease. The leasing company offered a five-year term. The payments were higher than the interest on a loan, but they were as an operating expense. "If we buy," Alex explained, "we are betting
However, there was the . That $3 million would be sucked out of their working capital. They wouldn't be able to invest in the new automated warehouse project, which had a projected IRR (Internal Rate of Return) of 15%. Chapter 2: The "Lease" Alternative