(11C) Purchase or Lease

[Gamo]

This program is the "Discount Cash Flow Analysis" to find NPV or
Net Present Value.

This program was from the HP-11C Solutions Handbook

I found this interesting that the example shown two set of data, one for
Purchase and another for Lease.
This program help you to choose which one is the best choice.

Procedure:

[A] Initial Investment
[B] Periodic Interest
[C] Key in the number of equal cash flow if greater than 1
[D] Net Present Value
[E] Review # of Cash Flow

Program:

Code:


LBL A  // Initial Investment
STO 0
0
STO 5
1
STO 2
RCL 0
CHS
RTN
-----------------------------------
LBL B  // I(%)
EEX 
2
÷
STO 1
LSTx
x
RTN
----------------------------------
LBL C  // Numbers of equal cash flow
STO 2
RTN
----------------------------------
LBL D  // NPV
STO 3
1
RCL 1
+
RCL 2
STO+5
Y^X
STO 4
RCL 0
x
RCL 4
1
-
RCL 1
÷
RCL 3
x
+
STO 0
1
RCL 1
+
RCL 5
Y^X
÷
1
STO 2
Rv
RTN
-----------------------------------------------------
LBL E    // Review # of Cash Flow
RCL 5
RTN

Registers

R0: NPV
R1: i / 100
R2: # of equal CF
R3: CF
R4: (1+n)^n
R5: Σn
R6-R9: Unused

Example:

Company needs a new photocopier and is considering leasing the equipment
as an alternative to buying. The end of the year net cost of each option is:

Purchase

Year Net Cash Cost
1 533
2 948
3 1,375
4 1,815
5 2,270

Total Net Cash Cost 6,941

-------------------------------------------------------

Lease

Year
1 1,310
2 1,310
3 1,310
4 1,310
5 1,310

Total Net Cash Cost 6,550

----------------------------------------------------
Looking at the total cost, leasing appears to be less, But purchasing
costs less the first two years. He known that he can make a 15% return
on every dollar he puts in the business; the sooner he can reinvent money,
the sooner he earn 15%. Therefore, he decides to consider the timing of the
costs, discounting the cash flows at 15% to find the present value of the
alternatives. Which options should he choose?
------------------------------------------------------

Purchase:
0 [A]
15 [B]
533 [D] 948 [D] display 1,180.30
1375 [D] 1815 [D] display 3,122.12
2270 [D] answer 4,250.71

Lease:
0 [A] 5 [C] 1310 [D] answer 4,391.32

-----------------------------------------------------
Leasing has a present value of 4391.32, while purchasing has a
present value of 4250.71.
Since these are both expense items, the lowest present value is the most
desirable. So, in this case, purchasing is the least costly alternative.
-----------------------------------------------------

Gamo