Economic Evaluation of an Equipment Lease Program

Abstract

One equipment supplier has developed a lease program with lease rates that appear attractive with today's high interest rates. The basic principal underlying this program is that the investment tax credit available with an investment may be more valuable to the equipment supplier than it is to the farmer. Thus, the equipment supplier (lessor) takes the investment tax credit (and depreciation) and makes the equipment available to the farmer (lessee) for a contract rate that may be lower than the annual interest rate that the farmer would have to pay if the equipment were purchased with borrowed funds. The intent of this paper is to provide an economic evaluation of this lease program. The analysis is conducted from a farmer's point of view.