Theatrical hardware buyout as what multiple of monthly rate?
June 24, 2011 7:01 PM   Subscribe

Theatrical gear buyout as a multiple of monthly lease rate?

A client has leased specialized hardware from me for over half a year. It's a custom hardware/software thingy that can't be replicated by anyone but me. What's a fair purchase price as a multiple of the monthly rate? Gearwise, think Green Hippo or Road Hog: large scale, professional theatrical hardware.

Thanks for both the rule of thumb answer, and any personal insights on the topic.
posted by lothar to Media & Arts (3 answers total)
Not sure that's the way to calculate it. Actually what's it worth to the client? You need an agent of some sort that can negotiate. Then will it be exclusive? For a period of time? Is there maintenance/repairs? Will you be building another? Dang, I'm curious.
posted by sammyo at 7:42 PM on June 24, 2011

Response by poster: There *is* a rule of thumb answer. I just don't recall what it is. Or at least a rule of thumb for card rates: In example, a week is 10% of purchase price.

It's not exclusive to this client. This is a buyout, with no maintenance or support. Yes, we have other "similar" boxes elsewhere.
posted by lothar at 7:48 PM on June 24, 2011

Best answer: I've leased a lot of industrial equipment, usually for terms of 3 to 5 years, with buyout clauses that always specify "fair market value" as the purchase price at end of lease term (this is for tax purposes under IRS regulations). Generally, the "fair market value" of an industrial machine at the end of a 3 year term lease is about 2/3 of original purchase price, and at the end of 5 years, about 1/2 of original purchase price, but market conditions for used equipment can push these values up or down 10% or so (unless there is a technological obsolescence issue with a particular model of machine, or a market distortion, such as unusual demand for used machines in a foreign market, etc., which can result in greater or lesser valuations).

On a lease term as short as 6 or 7 months, depreciation really hasn't accrued to your benefit, so there shouldn't be much of a discount on purchase price. If you do convert lease payments to purchase installments, your paperwork should reflect that change of sale terms, so that your position of revenue recognition is clear, for tax purposes.
posted by paulsc at 3:32 AM on June 25, 2011

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