There are several matters which the manager must consider when making the purchase or buying decision, and this decision must be consulted with financial manager also. The first matter is the holding period for which the company expects to use the machine, for example, and thus the optimal time for which the company needs it. Once the servicing term is decided upon, the matter whether the asset can be resold upon finishing the usage term, or whether the asset will have already lost its' value by that time must be analyzed. There are several risks with purchasing versus lending a machine. Though in theory it is easy to make this analysis, in practice the machine can become obsolete very fast and unexpectedly and the competitive advantage of using this machine within production cycle will have been lost.
             Another risk is the economic risk, or the fact that the company can lose its' business and the income will not be any longer sufficient to pay out the credit if the machine is purchased. On the other hand, in case of high economic downturn risk, the lease decision is better as it will allow the company simply to return the machine if the firm cannot afford it no longer. Under the uncertainties of future company performance due to legal, political or industry instability, or due to low industry attractiveness and thus low profit possible to be made, or if the business involves high risks, leasing is more flexible decision for the company. Within leasing, the risks are transferred to the owner of the machine.
             When computing the net present value of outflows in case the machine is rented, the rental payments may be certain for some period as the rent can be fixed during the period contract is signed. But in case of purchase, the interest rate can be variable and thus payment may differ with shifts in interest rates. Also, NPV can be affected by inflation heavily. Also, the difference is in accounting calculation o...