IS C-TAP TOO EXPENSIVE?

The first question you may have is, “Is C-TAP” too expensive? The monthly payment times 60 is more than if we just paid cash up front.”

Multiplying payments times the months in the contract will always result in a higher payment stream. But remember the time value of money. Money in hand today is worth more than in the future. There is a benefit in making payments one month at a time rather than paying a lump sum today.

Do not over look the “Rule of 72”. Internal returns on capital invested compound to create a hidden benefit of C-TAP. Take your corporate rate-of-return, divide that into 72 and that will tell you how long it takes to double your money. For example, if you’re looking at investing $20,000 in communications equipment, a payment might be $448/month for 60 months. Many will typically take a 60-month payment of $448.00 and multiply to get $26,880.00 of payments instead of $20,000 of cash. But what kind of a return do you make on your business? It probably ranges between 10% and 20%.

Assume a 15% return and the Rule of 72 says divide 15 into 72 and your money will double every 4.8 years. That means, if you invest that $20,000 in your own business and assume a 15% return, in five years you will have $42,000 due to the time value of money.

You’ve now lost $15,120 ($42,000-$26,880) by buying rather than utilizing C-TAP. You’ve also used up important capital and face the uncertainty of being stuck with out-of-date technology.

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