A company could sell a building for $250,000 or lease it for $2,500 per month. What would need to be considered in determining if the lease option would be preferred?
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A company could sell a building for $250,000 or lease it for $2,500 per month. What would need to be considered in determining if the lease option would be preferred?
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- Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?A company could sell a building for $250,000 or lease it for $2,500 per month. Without making computations,what would need to be considered in determining which of the two is preferred?You are in discussions to purchase an option on an office building with a strike price of $63 million. The building is currently valued at $60 million. The option will allow you to purchase the building either six months from today or one year from today. Six months from today, accrued rent [ayments from the building in the amount of $900,000 will be made to the owners. If you exercise the option in six months, you will receive the accrued rent payment. Otherwise, the payment will be made to the current owners. A second accrued rent payment of $900,000 will be paid one-year from today with the same payment terms. The standard deviation of the value of the building is 30 percent, and the risk-free rate is a 6 percent annual percentage rate. What is the price of the option today using six-month steps? (Hint: The value of the building in six months will be reduced by the accrued rent payment of ou do not exercise the option at the time
- Ajman LLC is planning to purchase a machinery for OR.85,000. The useful life of the machinery is 6 years. The machinery will be sold after 5 years for OR.15,000. The annual cost of maintenance and repairs is expected to be OR.8,000. The company wants to insure the machinery with an annual premium of OR. 3,000. The cost of capital for the company is 12%. Alternatively, company has an option to lease the same machinery with a lease rental of OR.25,000 per year. If company acquires the machinery on lease, the maintenance cost should be incurred by the company and insurance will be borne by the lessor.You are required to calculate the total annual cost, if Ajman LLC company lease the asset. a. RO.23,000 b. RO.43,000 c. None of the options d. RO.33,000Company C is considering a leasing arrangement for an asset that has no value after its use for 3 years. It can borrow the value of the asset, at a 3-year simple interest loan of 10% with payments at the end of the year and buy the asset, or the company can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases. What is the net advantage to leasing (NAL), if the firm's tax rate is 25%? (round to the nearest integer)(The Depreciation rate is 33.33% for Year 1, 33.33% for Year 2, and 33.33% for Year 3. The value of the asset $4,800,000)A bulldozer can be purchased for $380,000 and used for 6 years, when its salvage value is 15% of the first cost. Alternatively, it can be leased for $60,000 a year. (Remember that lease payments occur at the start of the year.) The firm’s interest rate is 12%. (a) What is the interest rate for buying versus leasing? Which is the better choice? (b) If the firm will receive $65,000 more each year than it spends on operating and maintenance costs, should the firm obtain the bulldozer? What is the rate of return for the bulldozer using the best financing plan?
- Some equipment is needed for a construction project. It can be leased for $150,000 annually, or it can be purchased for $900,000 at the beginning and sold for $225,000 at the end of 3 years. What is the rate of return for owning the equipment rather than leasing it?For $200,000, a fast food corporation may purchase the building and land required to open a new shop.Instead, an investor paid this sum for the property and leased it to a tenant for $2,000 per month overthe course of 20 years. Each month's rent is due at the end of the month. What is the maturity impliedby the lease, assuming that the property is still worth around $200,000 at the end of 20 years? Select the correct response:8%10%12%14%15%A contractor is considering the following two alternatives: Purchase a new computer system for $45,000. The system is expected to last 6 years with a salvage value of $7,000. Lease a new computer system for $9,000 per year, payable in advance (at the start of the year). The system should last for 6 years. If a MARR of 6% is used, which alternative should be selected using a net present worth analysis? Which alternative would you select using an annualized cost method of analysis?
- The Olsen Company has decided to acquire a new truck. One alternative is to lease the truck on a four-year contract for a lease payment of $10,000 per year, with payments 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 bank loan for the net purchase price, amortised over a four-year period at an interest rate of 10 percent per year, payments to be made at the end of each year. Under the borrow-to-purchase arrangement, Olsen would have to maintain the truck at a cost of $1,000 per year, payable at year-end. The truck falls into the MACRS 3-year class. It has a salvage value of $10,000, which is the expected market value after four years, at which time Olsen plans to replace the truck irrespective of whether it leases or buys. Olsen has a marginal tax rate of 40 percent. Should the truck be leased or purchased? Provide your decision based on NPV analysis.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 daysA firm can lease a truck for 4 years at a cost of $43,000 annually. It can instead buy a truck at a cost of $93,000, with annual maintenance expenses of $23,000. The truck will be sold at the end of 4 years for $33,000. Calculate present value if the discount rate is 10% PV of a Buy = PV of a Lease= Thanks so much!
