Q6/ A project engineering is assigned to start up a new project in a city where a 5-year contracthas been finalized the project. Two lease options are available each with a first cost, annual cost,overhaul cost, and deposit -return estimates shown in below. Determine which lease optionshould be selected on the basis of a present worth comparison, if the MARRás 20% per year.Location ALocation BFirst cost,S- 400,000Annual lease cost per year,S- 90,000Overhaul cost in year 3Overhaul cost in year 4Deposit return,$Lease term, years-70,00060,0005- 320,000- 110,000-120,000100,00010

Given two investment options, one at location A and another one at location B. We have to find the…

Answered: Q6/ A project engineering is assigned…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 6P

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On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
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