Read the following case situations and answer the questions that follow: Fewa Securities Inc. has decided to acquire a new market data and quotation system f its Pokhara home office. The system receives current market prices and oth information from several on-line data services, then either displays the information a screen or stores it for later retrieval by the firm's brokers. The system also permi customers to call up current quotes on terminals in the lobby. The equipment costs R 500,000, and, if it were purchased, Fewa could obtain a term loan for the full e price at a 10 percent interest rate. The equipment is is depreciated on straight line method over 4-year life. Expected salvage value is Rs 50,000. As an alternative to the borrow-and-buy plan, the equipment manufacturer informed Fewa that consolidated leasing would be willing to write a 4-year lease on the equipment, including maintenance, for payments of Rs 200,000 at the end of each year. Fewa's tax rate is 40 percent. You have been asked to analyze the lease-versus-purchase decision, and in the process to answer the following questions: purchase 1. Who are the two parties to a lease transaction? Describe the various types of leases. 3. What is Fewa's present value cost of leasing the equipment? What is the present value of cost of borrow and buy equipment? Would you recommend to purchase or lease the asset? How do you treat repair and maintenance costs in lease versus purchase decision? 2. 4. 5. Fewa's management has been considering moving to a new downtown location and they are concerned that these plans may come to fruition prior to the expiration of the lease. If the move occurs, Fewa would buy or lease an entirel new set of equipment, and hence management would like to include a cancellatio clause in the lease contract. What impact would such a clause have on th riskiness of the lease from Fewa's standpoint? From the lessor's standpoint? If yc were the lessor, would you insist on changing any of the lease terms if cancellation clause were added?