Leasing - part 2

In this lesson

1. 0:00 Lease versus buy decision framework
2. 1:05 Calculating post-tax cost of debt
3. 2:06 Lease calculation using annuity factors
4. 4:03 Advanced annuity adjustment explained
5. 5:21 Tax relief on lease payments
6. 6:22 Buy calculation and capital allowances
7. 7:38 Handling asset disposal and tax
8. 9:20 Comparing NPV costs and recommendation
9. 10:18 Key takeaways and practice guidance

About this lesson

This video walks you through a complete lease versus buy analysis, covering how to calculate the post-tax cost of debt as your discount rate, how to handle annuity payments (including payments in advance), and how to account for tax relief on lease payments and capital allowances. By comparing the net present cost of each option, you'll be able to make the rational investment decision that maximises shareholder wealth. This is a core technique for financial management and appears across ACCA and CIMA qualifications, particularly in papers covering investment appraisal and financing decisions. The worked example demonstrates the practical methodology: setting up separate NPV calculations for leasing and buying, adjusting for tax timing (tax paid one year in arrears), and handling disposal proceeds and associated tax liabilities. You'll see how to use annuity factors efficiently to simplify calculations and how to interpret the results to guide real business decisions.

Duration: 11m