SAD-Financial Consideration

It consists of three options Rental option Lease option Purchase option Rental option It is a form of lease directly by the manufactur...

It consists of three options

1. Rental option
2. Lease option
3. Purchase option

Rental option

It is a form of lease directly by the manufacturer. The user agrees for a monthly payment which is usually one year or less. The contract can be terminated without penalty by a 90-day advance notice. Users favor renting a system for 3 reasons

1. Insurance, maintenance and other expenses included in the rental charges.
2. No investment in equipment, rental charges are tax detectable
3. Rental makes it easier to change to other systems

Lease option

A lease system is acquired through a third party or from the vendor. A third party purchase ranges from 6 months with month to month renewals to seven years. 

Leasing has several advantages:

1. No financing is required
2. Lease charges are lower than rental charges
3. Leases may be written to show higher payments.
4. Leases may or may not include maintenance or installation cost

Drawbacks:

1. The lease period cannot be terminated without a heavy penalty.
2. The user may not be able to exchange the leased system with another system.
3. A leased system does not provide tax benefits.

Purchase option

Purchasing a computer has benefits and drawbacks. Purchasing means assuming all the risks of ownership including taxes, insurance. The owner obtains all the services and support that are available under the lease or rental agreement.

Advantages of purchasing are

1. Flexibility of modifying the system at will
2. Lower cash outflow if the user keeps the system longer

Drawbacks are

1. Initial high costs in relation to leasing
2. Insurance expenses and various taxes which are carried by the user
3. High overall risk