Use LCM Method (unequal lives).Problem : Two Location Alternatives, A and B where one can lease one oftwo locations:Location ALocation B$ 15,000$ 3,500$ 18,000$ 3,100Present Cost (PC)Annual Lease Cost (AL)Deposit Return (DR)$ 1,000$ 2,000Lease term (n)6 years9 yearsInterest rate (i)15 %15 %Which option is more preferable?Use n = 18 years (LCM)

The question is based on the capital budgeting concept by use of the Present worth method. The…

Use LCM Method (unequal lives). Problem : Two Location Alternatives, A and B where one can lease one of two locations: Location A Location B $ 18,000 $ 15,000 $ 3,500 $ 1,000 Present Cost (PC) $ 3,100 $ 2,000 Annual Lease Cost (AL) Deposit Return (DR) Lease term (n) 6 уears 9 years Interest rate (i) 15 % 15 % Which option is more preferable? Use n = 18 years (LCM)

Use LCM Method (unequal lives). Problem : Two Location Alternatives, A and B where one can lease one of two locations: Location A Location B $ 18,000 $ 15,000 $ 3,500 $ 1,000 Present Cost (PC) $ 3,100 $ 2,000 Annual Lease Cost (AL) Deposit Return (DR) Lease term (n) 6 уears 9 years Interest rate (i) 15 % 15 % Which option is more preferable? Use n = 18 years (LCM)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 2P: Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the...

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Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?
Northwest Bank has been asked to purchase and lease to Fafner Construction equipment that costs $1,500,000. The lease will run for eight years. If Northwest seeks a minimum return of 10 percent, what will be the required lease payment? Assume there is no residual value. Use Appendix D to answer the question. Round your answer to the nearest cent. $
Assume you can lease an item you need for a project for GH¢950/day. To purchase the item, thecost is GH¢13,000 plus a daily operational cost of GH¢ 300/day.a. How long will it take for the purchase cost to be the same as the lease cost? Critically discuss the appropriate make or buy decisions to be made in case the item will beused for; i. ii. iii. At most 15 daysMore 15 days but not exceeding 20 daysAt least 20 days
Shamma approaches Al-Meezan Islamic Bank to lease a car using an Ijara waIqtina contract ending in the ownership transferring to Shamma. The price of thecar is AED100,000. The lease period is 4 years, during which 40% of the value ofthe asset will be used up. The bank wants a profit rate of 7% in the lease contract.Calculate the monthly lease payment for the customer.Multi Line Text.
Compare the cost of the following lesing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Select one: a. $2,200 b. $2,000 c. $1,550 d. $1,450
AFX Sdn Bhd is trying to decide whether to accept a business loan or a lease financing facility for an equipment purchase. The equipment cost $60,000 with 3-year economic life, depreciated annually based on MACRS 3-year class with the following rates: Year 1 = 33%; Year 2 = 45%; Year 3 = 15%; Year 4 = 7%. If AFX accepts the business loan option, the 3-year loan will attract an interest rate at 12% interest calculated on a yearly reducing balance. AFX would have to maintain the equipment with an annual maintenance fee of $4,000, payable after services have been rendered. Annual insurance premium is $1,400 on cash before cover basis. AFX is planing to sell the equipment after its useful life for $3,000. Should AFX opt for lease financing, the annual lease rental to be paid in advance is $21,000. You also intend to exercise the option to purchase the equipment for $6,000 at the end of the lease period. Your company’s tax rate is 35%. Company’s after-tax cost of debt is 8%. Which…
The Olsen Company has decided to acquire a new truck. One alternativeis to lease the truck on a 4-year contract for a lease payment of $10,000 per year, withpayments to be made at the beginning of each year. The lease would include maintenance.Alternatively, Olsen could purchase the truck outright for $40,000, financing with a bankloan for the net purchase price, amortized over a 4-year period at an interest rate of 10%per year, payments to be made at the end of each year. Under the borrow-to-purchasearrangement, Olsen would have to maintain the truck at a cost of $1,000 per year, payableat year-end. The truck falls into the MACRS 3-year class. The applicable MACRS depreciationrates are 33%, 45%, 15%, and 7%. The truck has a salvage value of $10,000, which is theexpected market value after 4 years, at which time Olsen plans to replace the truck regardlessof whether the firm leases the truck or purchases it. Olsen has a federal-plus-state taxrate of 40%.a. What is Olsen’s PV cost of…
four-year lease agreement requires payments of $20,000 at the beginning of every year. If the interest rate is 7% compounded monthly, what is the cash value of the lease? (1) Effective Interest C = Blank 1 K = Blank 2 8. A Thus, ieff = Blank 3 NOTE: Show in 4 decimal places. (2) Final Answer = PHP Blank 4 NOTE: Do not round in between solutions. Final answer round to two decimal places. No need to put comma and UOM.
You have a prospective lessee for your office property and have the following options (assume a 7-year window and 2% discount rate). Which one will provide you with the highest effective rent? a. Option A: Rent is $98 per rentable square foot with the lessor paying operating expenses up to $40, lessee responsible for remainder. Operating expenses are $39 in first year and increase by $3 each year b. Option B: Rent is $90 per rentable square foot and will increase by $3 each year. Operating expenses are $40 during the first year and will increase by $1 every year. c. Option C: Rent is $91 per rentable square foot per year and will increase by $2.50 each year. Operating expenses are $45 for the first year and will increase by $3 every year, with lessor covering up to $48.
Jeremy Leasing purchases and then leases small aircraft to interested parties. The company is currently determining the required rental for a small aircraft that cost them $600,000. If the lease is for twenty years and annual lease payments are required to be made at the end of each year, what will be the annual rental if Jeremy wants to earn a return of 10%? a. $64,070. b. $70,476. c. $10,476. d. $30,314.
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $10 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $10 PSF in (a) is too low and wants to raise that amount to $14 with the same $1 step-ups. However, now ATRIUM would provide ACME a $52,800 moving allowance and $128,000 in tenant improvements (TIs). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $13 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $5 PSF for 20,000 SF per year. If…
Buy vs. Lease: You are a newly appointed CFO of a high frequency trading firm. You need a supercomputer to perform all trading calculations. The project will last for ten years. You are asked to determine if it is best to Lease or Buy the supercomputer. These options are: Lease: The cost to lease a supercomputer is $50,000 per year from T=1 to T=10. The lease includes all maintenance costs. Buy: The supercomputer costs $250,000 today at T=0. The maintenance cost will be $1,000 per year for T=1 to T=10. At year T=10 you will be able to sell the supercomputer for $100,000. Which option would you select if R=5%? Show all work. Which option would you select if R=20%? Show all work? What interest rate R results in the same present value for the Buy and Lease options?