Ann M. Hackert, Steven Byers
Lease vs Buy
This critical incident involves a lease versus a by decision. Although the literature in personal finance often concludes that buying is a better decision, Evan Anderson decided to analyze the issue by comparing the financial outcomes and considering technology and safety issues. The critical incident articulates the valuable safety technology currently available for automobiles. The literature regarding the personal finance leasing decisions focuses on costs and does not incorporate the technology and safety aspects of the decision facing Evan. This CI shows how common knowledge affecting decisions can change over time. The uncertainty about the future evolution of the technology makes Evan’s decision more difficult. Students will need to calculate and evaluate several different options available Evan. This CI uses time value of money and the traditional characteristics of an automobile lease to illustrate financial concepts. The critical incident also incorporates non-quantitative aspects of a financial decision. Students will be challenged to consider how the safety and technology issues are relevant and can be incorporated into the decision. This critical incident can be used in a range of courses including personal finance, corporate finance, financial management, and financial modeling. This critical incident requires students to do more than complete calculations. They will need to weigh the relative importance of the dollar amounts of the outcomes along with the benefits and uncertainty associated with vehicle safety technology.