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Northern
Arizona University
Purchasing Policy and Procedure
Lease vs. Buy Considerations
POLICY:
Capital equipment is generally acquired by outright purchase.
Occasionally, however, circumstances may require the leasing
of equipment to satisfy specific needs. Either a lease or
a lease/purchase may be used to lease capital equipment.
ANALYSIS OF ECONOMIC SOUNDNESS
Before entering into any lease agreement, the economic soundness
of buying versus leasing will be analyzed. Points to consider
in deciding to lease or buy are:
- Funds may be insufficient for outright purchase.
A department may have operating funds but not capital
funds for the purchase of equipment.
- The useful life of a piece of equipment may be determined
by:
- Application life
How long will the equipment be used? If the period
of use is relatively short, leasing may be preferred
over purchase.
- Technological life
When will the equipment become obsolete? Rapidly evolving
technology tends to hasten obsolescence. Leasing may
be advisable when obsolescence is a factor.
- Physical life
When will the equipment be worn out? Leasing may be
advantageous if the total cost of a lease for the period
of the physical life, application life or the technological
life is less than the purchase price.
- The total cost of the lease must be compared with the
total cost of purchase, taking into consideration such factors
as equipment costs, maintenance costs, interest, taxes,
and insurance.
NOTE:
CONTRACT PROTECTION
If leasing is determined to be the preferred method of acquisition,
care should be taken to provide contract protection for the
University regarding guarantees, fiscal funding-out clauses,
tax assessments, and other items.
ACQUISITIONS INVOLVING FEDERAL FUNDS
If federal funds are involved in the acquisition of the equipment,
it must first be determined that the source of funding allows
for leasing.
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