Lease or buy

In this lesson

1. 0:00 Lease or buy: Key terminology
2. 2:05 Why leasing matters for investment decisions
3. 3:19 Comparing lease versus purchase costs
4. 4:25 Worked example: Basic lease or buy analysis
5. 7:21 Tax implications of leasing
6. 8:19 How tax affects borrowing costs
7. 10:49 After-tax discount rates explained
8. 11:56 Worked example: Lease or buy with tax considerations

About this lesson

This video walks you through the relevant cash flows for each choice, shows you how to apply tax implications including capital allowances and the tax deductibility of lease payments, and demonstrates how to calculate after-tax discount rates for consistency. By the end, you'll be able to confidently evaluate whether leasing or purchasing an asset is the lower-cost option for your organisation, a critical skill for the FM exam and real-world investment decisions. The first part establishes the foundations: what a lease is, why it matters as an investment option, and the key differences between leasing and buying. You'll see how leasing preserves capital and understand why the cost of borrowing should be your discount rate for both scenarios. The video then works through a practical example, calculating the present value of lease payments against the cost of purchase and scrap value, showing you why the lowest present value option wins. The second half introduces tax into the picture, which significantly changes the analysis. You'll learn why lease payments reduce taxable profit, how capital allowances work on a reducing balance basis, and crucially, how to calculate after-tax discount rates to maintain consistency across your calculations. The video finishes with a full worked example incorporating tax, capital allowances, and after-tax discounting, so you can see exactly how all the pieces fit together when making a real lease or buy decision.

Duration: 18m