Finance and Accounting

You are going to start an environmental, health & safety consulting firm on September 1, 2013, located in Findlay, Ohio. You have several clients lined up, and staff hired. You have purchased all your necessary testing and office equipment and supplies, and leased office space. You have hired several employees and are ready to start operations. You will bill your clients monthly and receive payment within 30 days of submitting your bill. Thus you anticipate sending your first bill out at the end of September and receiving payment by October 30th. You have enough funds in the bank for 6 months operating expenses.

You decide that you need two vehicles for your business; a van for field work to carry testing equipment and a second vehicle for other business travel. You go to the local Honda dealer and receive the following information:

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Lease a 2013 ODYSSEY LX for 36 Months:

Initial Cost: $25,360.00; Lease End Value $15,408.40; Lease Term 36 months;
Sales Tax: $784.25; Acquisition Fee $595.00; Total Annual Fees $69.50;
Total Initial Fees $15.00
Amount Due at Start of Lease $442.23; Total Monthly Payment $357.73.

The lease is based on the fact that the vehicle will not be driven more than 45,000 miles during the term of the lease. For any mileage over 45,000 the charge will be $0.15 per mile.

Lease a 2013CRV LX 4WD for 36 Months:

Initial Cost: $23,240.00; Lease End Value $13,867.95; Lease Term 36 months;
Sales Tax $794.29; Acquisition Fee $595.00; Total Annual Fees $69.50; Total Initial Fees $15.00
Amount Due at Start of Lease $447.32; Total Monthly Payment $362.82.

The lease is based on the fact that the vehicle will not be driven more than 45,000 miles during the term of the lease. For any mileage over 45,000 the charge will be $0.15 per mile.

Purchase a 2013 ODYSSEY LX with three year payments:

Initial Cost: $25,360.00; Term 36 months; Interest Rate 1.9%;
Sales Tax: $1,648.40; Total Fee $15.00;
Total Monthly Payment $773.41.

Purchase a 2013 ODYSSEY LX with five year payments:

Initial Cost: $25,360.00; Term 36 months; Interest Rate 2.9%;
Sales Tax: $1,648.40; Total Fee $15.00;
Total Monthly Payment $484.92.

Purchase a CRV LX 4WD with three year payments:

Initial Cost: $23,240.00; Term 36 months; Interest Rate 3.9%;
Sales Tax: $1,510.60; Total Fee $15.00;
Total Monthly Payment $731.18.

Purchase a CRV LX 4WD with five year payments:

Initial Cost: $23,240.00; Term 36 months; Interest Rate 3.9%;
Sales Tax: $1,510.60; Total Fee $15.00;
Total Monthly Payment $455.66.

The dealer has assured you that no matter your decision, the vehicles are available and the paperwork will only take a day or so. Since you need the vehicles available for business on September 1st you decision must be made by August 28th.

Your question then becomes, do I lease or purchase? If I purchase, do I purchase over a 3 year or 5 year period? Or, perhaps I mix and lease one and purchase one vehicle, and if I purchase one vehicle which payment plan do I take?

Question

Please review the above buying and leasing options and select the one you think best. Please discuss all the available options regarding leasing or buying, and discuss why you would or would not select each option that is available.

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