On 5/11/07, Ray Saintonge <saintonge(a)telus.net> wrote:
Anthony wrote:
Of course it is. Interest rates are still a
factor though. As
interest rates go down, leases tend to become more favorable.
Sure. It's primarily a matter of being competitive with other lessors.
How does the rate of interest compare with an ordinary back loan? That
is another option for someone with cash flow problems.
A loan isn't a particularly great idea for a non-profit, but it might
make sense in this particular instance. I was only comparing leasing
to the status quo.
There are an infinite number of possible ways the WMF could solve its
cash-flow problems. I'm only presenting one. If you'd like to
present another, please do.
30 month
hardware will still work, but in my experience it's almost
never cost effective to buy such hardware instead of buying new.
Buying 30-month old hardware is a questionable practice for anything
critical, but hardware that was bought new 30 months ago can keep doing
the job that it was designated for.
Sure. It can. And maybe it would even make sense for the WMF to
exercise a buy option at the end of a lease. But if so, that just
skews the results *more* in favor of leasing.
The present value of each payment made at the
beginning of each month
(p0 to p29) is 167/(1+i/12)^pn where i is the effective interest rate
and pn is the payment number. For the sum of these plus the leasing
fee to be equal to $5,000 the interest rate would need to be 1.4%. To
make the comparisons equal we have to assume that at the end one gets to
keep the hardware at no cost.
A $1,000 payout at p30 taken to its present value would mean an implicit
interest rate of 14.6%; a $2,000 payout would imply an interest rate of
23.9%.
OK... Do you have a point?
Yes, hardware needs are growing, and it's the extra
life beyond 30
months that allows you to pay for expanding needs.
Only if you have the capital to do so in the first place. Wikimedia
doesn't. The budget is stretched horribly thin, to the point where
unacceptable tradeoffs are being made.
That may be so, but it's irrelevant to the analysis. One needs to
analyse the deal in its own right, and only after that has been done
does one determine what one's budget will allow, and whether the cash
flow benefit will be worth the extra cost.
No. The analysis of the deal is completely dependent on the cash-flow
situation of the WMF. The exact same deal can be beneficial to some
and detrimental to others. I certainly wouldn't lease my desktop
machine, for instance. But I don't have cash-flow problems. The WMF
does.
One also needs to weigh in
the possibility of a conventional bank loan.
Again, I was comparing leasing to the status quo. If the WMF had
chosen to get a conventional bank loan, then I would be comparing to
that, but they haven't. Of course, conventional banks will finance
leases also, so that option also should be weighed in. I'm not about
to go to banks and ask them to give me quotes on a hypothetical
situation involving a corporation I have control over. I just pulled
some numbers from Dell's website, because that's what I had easy
access to. The WMF could *definitely* get more favorable leasing
terms, by shopping around.
Another possibility is for the WMF to issue bonds to individuals.
They could probably get even lower interest rates than from a bank,
maybe even could convince people to lend them money at 0%.
The bottom line is that the WMF is not spending enough on competent
professionals, and there's no excuse for it.
If the fair market value of the server is so small
after the 30 months,
then the payout should be just as small. There would be no point to the
lessor taking back old equipment if all it's going to do with it is
throw it in the trash, and in some cases even incur recycling costs.
Fine, so if the FMV is low enough after 30 months, then you pay it.
If it isn't, then you don't. Since we can't know the FMV beforehand,
we can't know the true value of the lease. But since the buyout is
optional, where the FMV is set can only add positive value to the
deal, if it is set too low. So it is safe to assume it will be set
fairly or too high, and that the option won't be exercised.
Anthony