Week 3 Rent vs Buy

Question 1

What are pros & cons to renting?

Answer 1

Pros:
* frees up savings
* flexibility
* allows diversification

Cons:
* may be more expensive
* no forced savings

Question 2

What are pros & cons to buying?

Answer 2

Pros:
* stability
* value increase
* using equity

Cons:
* interest payments
* opportunity costs
* ownership costs

Question 3

What are the 4 Behaviourial Biases?

Answer 3

1) Overconfidence: Over judging skills and ability.

2) Anchoring: Anchored to initial information.

3) Framing Effect: Believes are changed depending on way it is displayed and described.

4) Loss Aversion: Loss are twice as painful as gains, relunctance to realise losses.

Question 4

What are the advantages to buying vs leasing?

Answer 4

Leasing
* Cash retention
* Seasonal changes
* Exploit gap in market
* Allows to expand without huge capital expenditure
* Reduction in uncertainty – know residual value

Buying;
* Buying direct from manufacturer usually results in lower cost per aircraft
* If own, don’t have to pay regular lease payments
* Can use aircraft as collateral to obtain loans/financing

Question 5

What are the 3 potential real options?

Answer 5

1) Option to Delay
2) Option to Expand
3) Option to Abandon