Return on Software: Maximizing the Return on Your Software Investment

Comparing Financing Methods in After-Tax Cash-Flow Terms

When a company wants to buy an asset, there are three ways of paying for it, as follows:

• Buy it with money they already have (use retained earnings).

• Buy it using a loan.

• Lease it.

Each of these options has different income tax consequences, which are compared using the example in Table 17.9.

Table 17.9. An Example for Comparing Financing Methods in After-Tax Terms

Initial investment	$40,000
Salvage value	None
Annual income	Not shown
Annual operating costs	$8000
Depreciation method	Straight-line, 4 years, half-year convention
Planning horizon	6 years
Effective tax rate	48%
MARR (after-tax)	10%

The income cash-flow stream doesn't need to be included because each option will produce the exact same income; ...