1. Corporate Buy vs. Lease Analysis A Presentation by Team Four: Junni Kim Trung Nguy Robert Quesada II Felipe Vargas Yiu-Ming Yuen February 10, 2004

2. Our Scenario The Client: 3D graphics design company The Client: 3D graphics design company The Consultant: Engineering consulting company needs to replace 25 PC’s for its client The Consultant: Engineering consulting company needs to replace 25 PC’s for its client Consultant considers buying or leasing the workstation equipment Consultant considers buying or leasing the workstation equipment 3D graphics application recommends P4, 2.5GHz processor, 1GB SDRAM, 120GB HD, 256MB video ram, and DVD-RW capability 3D graphics application recommends P4, 2.5GHz processor, 1GB SDRAM, 120GB HD, 256MB video ram, and DVD-RW capability

3. Resources www.dell.com for workstation equipment www.dell.com for workstation equipment Class textbook: “Essentials of Engineering Economic Analysis”, 2 nd ed. Class textbook: “Essentials of Engineering Economic Analysis”, 2 nd ed. Search engines to find reputable internet consulting firms for more examples and ideas of methodology Search engines to find reputable internet consulting firms for more examples and ideas of methodology

4. Equipment Chosen Dell Precision Dimension 8300 Dell Precision Dimension 8300 P-4 at 3.2GHz P-4 at 3.2GHz 1GB SDRAM 1GB SDRAM 120GB HD 120GB HD 256MB video ram 256MB video ram DVD-RW DVD-RW Total Cost of equipment: $2,282/PC x 25 PC’s = $37,425 Total Cost of equipment: $2,282/PC x 25 PC’s = $37,425

5. Our Options to Acquire this Equipment Fair Market Value Lease Fair Market Value Lease 10% Purchase Option Lease 10% Purchase Option Lease $1 Buy-Out Purchase Plan Lease $1 Buy-Out Purchase Plan Lease Finance Purchase Finance Purchase

6. Cost of Each Option

7. Benefits of Leasing Smaller Capital Expenditure Smaller Capital Expenditure Protection Against Obsolesce Protection Against Obsolesce Flexibility Flexibility Tax Advantages Tax Advantages Improved Balance Sheet Improved Balance Sheet

8. Costs of Leasing Finance Charges Finance Charges No resale value realized No resale value realized Technology upgrade options are expensive Technology upgrade options are expensive