A finished FIN-432 Topic 8 lease versus own analysis example, comparing ten years of lease payments with buying, holding and selling a building, and locating the exit growth that decides it. Searches like "fin 432 topic 8 assignment example", "fin432 topic 8 sample" and "fin-432 topic 8 example" land here.
What a finished FIN-432 Topic 8 lease versus own analysis looks like
The finished analysis prices two paths with illustrative figures. The lease starts at 24 a square foot, 480,000 a year, rising 2.5 percent annually and paid at the start of each year. Owning means paying 6,000,000 for the building, carrying 60,000 a year of structural repairs a tenant would not bear, and selling after ten years with 5 percent selling costs. Both paths are discounted at the firm's 9 percent cost of capital, since money tied up in a building is money not invested in the business. If the building gains 2 percent a year in value, owning costs about 3,450,000 in present value against about 3,697,000 for leasing. At 1 percent growth leasing wins by about 29,000, and with no growth by about 280,000. The break-even is near 1.1 percent a year.
How a FIN-432 Topic 8 example is structured
The analysis opens with its finding: ownership is cheaper only if the building's value grows faster than about 1.1 percent a year and the firm stays the full ten years. A case section describes the composite firm, its space need and both offers, all illustrative. The lease section lists the ten payments and discounts them from the start of each year. The ownership section sets the price against repairs and net sale proceeds, each discounted from its year. A paragraph defends the firm's 9 percent cost of capital over the mortgage rate. A table sets both present values side by side at three growth rates. The flexibility section reruns both paths over five years, where owning and selling costs about 2,143,000 against about 2,130,000 for leasing. A tax paragraph describes deductibility in general terms. The recommendation favors leasing and names the evidence on local values that would reverse it.
Finding stated with its condition
Ownership wins only above about 1.1 percent annual value growth and only if the firm stays ten years, and the analysis says so before any table.
Lease payments dated to each year's start
Ten payments beginning at 480,000 and rising 2.5 percent are discounted from the start of each year, because the lease is paid in advance.
The firm's own rate, not the mortgage rate
Discounting at the 9 percent cost of capital charges ownership for the business investment the purchase money displaces, which a mortgage rate would ignore.
Exit value as the deciding input
At 2 percent growth owning saves about 247,000 in present value, at 1 percent leasing saves about 29,000, and at zero growth about 280,000.
Flexibility tested over five years
If the firm moves after five years, owning and selling costs about 2,143,000 against 2,130,000 for leasing, which erases the ownership case.
Where marks go in FIN-432 Topic 8
Comparing total lease payments with the purchase price, both undiscounted, is the error most often marked down, since it ignores timing and the building's value at sale. Discounting at the mortgage rate rather than the firm's cost of capital treats money locked in the building as though it had no better use in the business. Papers that leave out the owner's structural repairs compare a tenant's full cost with an incomplete owner's cost. An exit value asserted with no sensitivity hides the input that decides the result, since the answer reverses between 2 and 1 percent growth. Analyses that assume the firm stays ten years without testing an earlier move ignore the flexibility a lease provides. Stating depreciation or deduction rules as fixed figures, rather than as current law described generally, dates the analysis.
Get a FIN-432 Topic 8 example written to your instructions
Send the FIN-432 Topic 8 instructions and your classroom rubric, with the lease terms or case your section provides. We write a custom example to them, with both paths discounted at a defended rate, owner-only costs included, the exit value tested across growth rates, an early move modeled and tax treatment described generally, in 24 to 48 hours. The first one is free.
FIN-432 Topic 8 questions, answered
Why discount at the firm's cost of capital?
Because buying the building commits 6,000,000 that could otherwise fund inventory, equipment or expansion, and the firm's cost of capital measures what that money is expected to earn in the business. Discounting at a mortgage rate would treat the purchase as costless beyond its interest. The lease, meanwhile, is itself a fixed obligation much like debt, and the analysis notes that the two paths carry different risks as well as costs.
How do taxes change a lease versus own decision?
Lease payments on business property are generally deductible as an expense, while an owner generally deducts depreciation, interest and operating costs and may owe tax on gain at sale. The value of each depends on the firm's tax position and rules that change over time, so the example describes them in general terms and compares the paths before tax, leaving specific treatment to the assignment or a tax professional.
Does the analysis say my company should lease its building?
No. Every figure here, from the rent to the growth rates, was invented, and the result was built to show how one input can decide the answer. Any real choice rests on actual terms, local property values, the firm's growth plans and tax position, and deserves review by qualified real estate, legal and tax advisers. The example is FIN-432 coursework demonstrating the discounted comparison the topic asks for.