IT Equipment Buy vs. Lease Decision

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IT EquipmentBuy vs. Lease Decision

• Gary E. Carpenter, CPA
• Technology Assurance Committee
• Tuesday, December 3, 2002

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A Little History

• IBMs Market
• 1952 Antitrust Lawsuit
• 1956 Consent Decree

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1956 Consent Decree

• IBM must
• Sell its equipment as well as rent or lease it.
• Offer maintenance to all users of IBM equipment.
• Make parts and subassemblies available for sale.
• Not restrict the buying and sell of used
  equipment.
• Not purchase used equipment and send it to the
  scrap pile.
• Not prohibit or control alteration to its
  equipment.
• Set up a restricted Service Bureau Corporation
  to market computer services.

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Third Party Computer Industry

• After the 1956 Consent Decree
• New industry is born
• Third Party Computer Companies
• Third Party Engineering Companies
• Refurb Companies

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What Should We Look At In The Buy vs. Lease
Decision?

• What are the numbers
• What is the life of the asset
• Corporate policies
• Residual value
• Upgrading
• Technology
• Cash and/or financing resources

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You Decide to Buy

• How will you pay for the asset?
• Identify the Economic and Corporate Life of the
  asset.
• Plan on how you will dispose of the asset.
• Plan your replacement/upgrade asset now.

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You Decide to LeaseNow What?

• Work with a company you know and TRUST!!!
• List what your needs are.
• Do what if scenarios.
• Have an exit plan at the end of the lease.
• Beware of the low number.

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The Lease Ends,What do We do Now?

• Know when the lease ends.
• Make sure you know when the lease ends.
• Then check again to see when the lease ends.
• At least six months before the lease ends
• Decide if you want to keep the asset
• Contact the lessor
• Negotiate new contract or prepare to return the
  asset
• If returning the asset what is your replacement
  plan

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We Made the Wrong Decision!!

• If the asset was purchased
• What is wrong?
• Technology
• Asset
• Impact on financial statements
• Finances

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We Made the Wrong Decision!!(continued)

• If the asset was leased
• What is wrong?
• Technology
• Asset
• Impact on financial statements
• Lease agreement
• Residual value of the asset

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Gary E. Carpenter, CPA

• Carpenter Information Technologies, Inc.
• P.O. Box 15278
• Syracuse, NY 13215-0278
• 315/487-4567 Fax [phone]
• E-mail gcarpenter-cit_at_worldnet.att.net