Answered: Location A Location B First cost, $ -…

Location A Location B First cost, $ - 15,000 -18,000 Annual lease cost, $ per year -3,500 -3,100 Deposit return, $ 1,000 2,000 Lease term, years 6 9.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 5C: Initial Direct Costs Efland Company leases equipment to Orange Company. Efland incurred the...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A project engineer with EnvironCare is assigned to start up a new office in a city where a 6-year contract has been finalized to collect and analyze ozone-level readings. Two lease options are available, each with a first cost, annual lease cost, and deposit-return estimates shown below. The MARR is 15% per year.

a. EnvironCare has a practice of evaluating all projects over a 5-year period.
If the deposit returns are not expected to change, which location should be
selected?
b. Perform the analysis using an 8-year planning horizon.
c. Determine which lease option should be selected on the basis of a present worth comparison using the LCM.

Location A
Location B
First cost, $
- 15,000
-18,000
Annual lease cost, $ per year
-3,500
-3,100
Deposit return, $
1,000
2,000
Lease term, years
6
9.

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