Leasing vs Purchasing

This memo is in regard to the recent proposal of leasing or buying the bi-level and tri-level Auto Rack equipment for Burlington Northern Railroad Company. As indicated before, this equipment is a great investment for our company as it exceeds our company’s 20% hurdle rate and therefore investing in them would be a great decision for the company. Hence this memo will seek to explain the optimal way to finance this investment; in other words, this memo will try and

Most estimates place in-house retirement of assets at $300-$500 per computer. With 2270 computers currently in use by company employees (additional 49 in reserve), this equates to more than $900,000 to turn over all of our desktops and laptops. This does not include all of our servers and other storage units. The overall cost would be in excess of $1 million. While this amount falls well within our IT budget of $80 million, there may be another, more economical way in which to retire our outdated equipment.

If the company is fine with the computer equipment being out of date, the company can just buy their equipment, but if the option is to lease, there are a few more questions that need to be asked.

1. A new operating system for an existing machine is expected to cost $260,000 and have a useful life of five years. The system yields an incremental after-tax income of $75,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $10,000.

This determines the project’s outcome, usefulness, effectiveness, cost, and time it takes the project to be completed. This also determines the future outcome of the project and will be needed for an upgrade. The scope of the project will be determine and completed within six months. The resources constraints of completing the project will be determine by cost and time. The cost could be higher from the original cost for the completion of the project. The expected cost of the project will be $50,000. This will include paying the project team, cost of software, and hardware. The V.P. of operations of Riordan Manufacturing will approve any changes made to the project. The project team that will be working on this project will be the IT department within the company.

The major market trends faced by the organization are the rapid development of the technology. This trend gives the customer an uneasy sensation, so the customer will ask for the upgrade at the lower cost conceivable. Other trend is the cost of the internet, and the use of the computer by their employee for personal matters.

Like many of its most profitable competitors, Alcan has grown quickly through insightful series of mergers, acquisitions and rapid product development and launch strategies throughout the major markets it sells into. The company has settled on a highly decentralized divisional business model that has to the point of the case study served them well. Their IT systems are showing signs of massive overduplication of expense, with a $500M level of spending on enterprise applications with SAP being the majority. There are further signs of massive waste in their highly diversified organizational structure. There are 400 systems in the company all dedicated to pricing, a massive duplication of costs, time and effort on the part of IT across the five divisions. There are also over 1,000 concurrent enterprise-class IT systems being used throughout the company at any point in time. Conservatively speaking the company is spending 20% of their total enterprise software spend on maintenance costs alone. This is forcing the CIO, Robert Ouelette, to re-evaluate both the organizational structure and IT systems supporting it. The goals of this analysis are to evaluate the advantages and disadvantages of the existing application or IT management structure. An analysis of the proposal by Robert Ouelette is also provided along with an assessment of it potential effectiveness in solving the challenges is facing today.

The scope of the project involves replacing these computers and getting new desks to accommodate the new desktops. Newer software will be added to the computers, including an updated operating system. College staff members will have to be trained on the use of the new computers and the software. The training will include live training and hardcopy training materials. The project has a deliverable of upgrading all the classroom computers in the business department. The college has 5 classrooms in the business department, and each classroom has 25 computers. All 125 computers will be replaced with newer all-in-one desktops with touchscreens. The vendor has been determined, and you will work with this vendor upgrade the computers.

The quarterly leasing cost was $120,000 and $100,000, respectively. To iterate, the reason for opening only two locations was to position the company’s products in front of a significant number of consumers with metropolitan appetites and disposable incomes to support computer purchases.

The investing activities showed a reduction in the cost of acquisition of equipment and favorable lease rights, but an increase in short-term investments. This reduction is the result of the leases providing a minimum annual rent that adjusts to set levels during the lease term. Approximately 52% of the leases provide additional rent based on percentage of sales to be paid when designated levels are achieved. The increase in short-term investments center around expansion and remodeling costs.

You work for a small, local telecommunications company. In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure.

4. Maintenance: Maintenance cost is high for purchased products as after manufacturing warranty runs out customers need to pay maintenance cost.

In order to determine if leasing the hardware and software for 24 months would be beneficial, we first calculated the NPV and EAC for two different scenarios.  The first scenario consists of computing the NPV and EAC of

Introduction: A company called Ian’s & Co currently employs a team of IT technicians to manage their IT infrastructure and also support the IT users. Also quite recently the company has taken over a similar but a smaller company which is also employs technical support staff in the same way.

This paper will discuss the processes and pitfalls faced by Information Technology managers in today’s world of business. Today’s IT managers need not only be savvy about existing equipment and upcoming technology; but must also understand the budget issues they face and how to properly address them. The IT manager is asked to look into a crystal ball and predict what products will be beneficial and which requirements can be cut from the budget. They must be able to differentiate between the new shiny fad and products that will be a true asset to the company’s visions and goals. An IT budget can no longer be a static number on the company’s finance sheet; it must be a clear vision of the department’s future spending while falling in line with the goals and expectations of the company.