Experience enduring value when considering your financing options.
There is not a definite right or wrong when it comes to financing or making a cash payment. However, there are some key things to consider, such as residual value—the value remaining after the equipment is paid off. Let’s look at some crucial considerations in more detail.
Cost Per Year
What will the piece of equipment actually cost you per year over its lifetime?
When Sam’s old piece of equipment gave out, he bought a new piece for $20,000 (including loan interest) on a five-year payment plan. Previously plagued with breakdowns on his old piece, Sam was relieved to spend only $1,000 on maintenance over the course of 10 years, plus the machine turned out to be a good investment, churning out approximately $5,000 annual earnings. At the end of his 10 years, Sam had spent $21,000 for a machine with residual value of $7,000.
$4K annual (or $333 monthly) equipment payment x 5 years= $20K + $1K maintenance= $21K total cost
$21K / 10 years = $2.1K annual cost
Estimated $5K annual earnings x 10 years of use= $50K
Estimated $50K earnings – $21K equipment cost= $29K profit + $7K value left
When Lyle bought the farm, he also purchased a used piece of equipment for $10,000. He spent $1,000 on annual maintenance, ensuring it ran smoothly and fixing the breakdowns. The machine was put to good use and earned an estimated $5,000 per year. At the end of five years, Lyle had spent $15,000, left with a machine that had $500 residual value.
$10K equipment cost + $5K maintenance = $15K total cost
$15K / 5 years = $3K annual cost
Estimated $5K annual earnings x 5 years of use= $25K
Estimated $25K earnings – $15K equipment cost = $10K profit + $500 value left
An Esch Drill purchased on a financing plan at work generating profit.
Residual Value
What is the value of the piece of equipment after it’s paid off?
In the end, Sam spent more money on his equipment than Lyle did. However, by choosing new equipment through financing, Sam also gained more value and the ability to invest his money instead of using it for a cash payment.
By spreading your money out over a period of time, our flexible financing plans let you invest in quality equipment without stretching your budget. Choose a payment plan that fits your operation and enjoy the benefits of top-notch equipment long after the last dollar is paid.
To Finance or Not to Finance?
The decision ultimately depends on your specific situation and financial goals, amongst other factors—price, used equipment availability, intent of purchase, etc. Contact an Ackerman’s representative to find the right solution for you.
