Assume that a company is choosing between two alternatives-lease a piece of equipment for five years or buy a piece of equipment and sell it im five years. The costs associated with the two alternatives are summarized as follows: Purchase cost of equipment Annual operating costs Immediate deposit Annual lease payments Salvage value (5 years from now) Lease $ 25,000 $ 18,000 Buy $ 60,000 $ 6,000 $ 8,000 Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. ………………………. If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value analysis with a discount rate of 12%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it?
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- Written report with the following content: • Appendix1: Leasing Explain the calculations. Your recommendations Objective: Should FFT lease or construct their own production facility Option 1: Construct Costs to incur: Buying land, construct building and getting ready for use (FFT has these funds available in their bank account today so no mortgage is needed) $ 1,200,000 Taxes, insurance, and repairs (per year) $110,000 Intended years of use 15 Projected market value in 15 years $ 1,250,000 Option 2: Lease Intended years of use 15 Deposit required today (this deposit will be returned to FFT when the lease contract is complete is 15 years) $ 100,000 Annual lease payment $ 160,000 Property taxes (annual) to be paid by FFT $ 15,000 Insurance (annual) to be paid by FFT $ 15,000 Required rate of return 8% Methodology: The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction. Based on the analysis, they will recommend the preferred option…A company is considering two alternatives with regards to equipment which it needs. The alternatives are as follows: Alternative A: Purchase Cost of Equipment 703,668700,000 Salvage Value 100,454100,000 Daily operating cost 501500 Economic life, years 10 Alternative B: Rental at 1,5751,500 per day. At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.A company is considering two alternatives with regards to equipment which it needs. The alternatives are as follows: Alternative A:PurchaseCost of Equipment 700,581Salvage Value 105,896Daily operating cost 534Economic life, years 10 Alternative B: Rental at 1,539 per day. At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.
- Appendix One (Construct or lease)Objective: Should WLW lease or construct their own production facilityOption 1: ConstructCosts to incur:Buying land, construct building and getting ready for use$ 360,000Taxes, insurance, and repairs (per year) $ 34,000Intended years of use 20Projected market value in 20 years $ 1,600,000Maximum down payment WLW can make $ 500,000Remainder in four payments of; $ 160,000Revenue opportunityBuilding annex will be leased to a tenant and will generate a lease revenue (per year) for 10 years $60,000Option 2: Lease Intended years of use 20First lease payment due now $ 90,000Rest of the lease payments (years 2-20) $ 90,000Operating costs to be paid by WLWRepairs (annual) $ 9,000Maintenance (annual) $ 26,000Initial one-time deposit, will be returned in year 20$ 40,000Required rate of return 15%Methodology:The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction.Based on the analysis, they will recommend the…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 daysObjective: Should WAW lease or construct their own production facilityOption 1: ConstructCosts to incur:Buying land, construct building and getting ready for use$ 230,000Taxes, insurance, and repairs (per year)$ 30,000Intended years of use20Projected market value in 20 years$ 1,600,000Maximum down payment WAW can make$ 500,000Remainder in four payments of;$ 180,000Option 2: LeaseIntended years of use20First lease payment due now$ 100,000Rest of the lease payments (years 2-20)$ 90,000Operating costs to be paid by WAWRepairs (annual)$ 7,000Maintenance (annual)$ 25,000Initial one-time deposit, will be returned in year 20$ 40,000Required rate of return15%Methodology:The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction.Based on the analysis, they will recommend the preferred option (construction or leasing).
- Should WLW lease or construct their own production facilityOption 1: ConstructCosts to incur:Buying land, construct building and getting ready for use$ 360,000Taxes, insurance, and repairs (per year)$ 34,000Intended years of use20Projected market value in 20 years$ 1,600,000Maximum down payment WLW can make$ 500,000Remainder in four payments of;$ 160,000Revenue opportunityBuilding annex will be leased to a tenant and will generate a lease revenue (per year) for 10 years$60,000Option 2: LeaseIntended years of use20First lease payment due now$ 90,000Rest of the lease payments (years 2-20)$ 90,000Operating costs to be paid by WLWRepairs (annual)$ 9,000Maintenance (annual)$ 26,000Initial one-time deposit, will be returned in year 20$ 40,000Required rate of return15%Methodology:The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction.Based on the analysis, they will recommend the preferred option (construction or leasing).Purchase cost of equipment Annual operating costs Immediate deposit Multiple Choice O Annual lease payments Salvage value (5 years from now) Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value analysis with a discount rate of 22%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it? O O $(6,272) $(5,442) $(2,462) Lease $(4,952) $ 25,000 $ 18,000 Buy $ 60,000 $6,000 $ 12,000Please use Excel Broncos Company leased equipment from Wilson-Tech Leasing on January 1, 2022.Other information:Lease term 3 yearsAnnual payments $40,000 on January 1 each yearLife of asset 3 yearsImplicit interest rate 8%There is no expected residual value.Required: 1. Using the Excel (not formula or PV tables), compute the amount of Right-of-Use Asset as thepresent value of future lease payments. Explain how you compute this PV. 2. Prepare appropriate journal entries for Broncos for 2022. Assume straight-line amortizationand a December 31 year-end. Round your answers to the nearest whole dollar amounts. January 1, 2022: December 31, 2022:
- As an Engineer, you are asked to consider two building proposals, which alternative do you deem superior based on the economics? (Assume the money to be used would be borrowed and paid back within the life of the structure). The nominal interest rate is at 21.4% compounding quarterly. State which method you will use and state why. ALTERNATIVE A ALTERNATIVE B Туре Steel Cement Life 20 years 20 years Initial Cost $1089 $2954 Maintenance $486/year $138/year Cost at the end of 8 $57 $64 yearsAntique Accents projects that demand for its services will rise for a period of four years before subsiding. It can lease additional communication equipment for $1,300 at the beginning of every quarter year for four years. Alternatively, it can purchase the equipment for $22,500 at 3.50% compounded quarterly. The salvage value of the equipment after four years is expected to be $3,900. a) Which option would you recommend? O Purchase the equipment. O Lease the equipment. b) In current dollars, how much better is that option? For full marks your answer(s) should be rounded to the nearest cent. Current dollars saved = $ 0.00Two alternatives are being considered for installation. Which should be selected based on an interest rate of 5.6% per year ? Alternative A Alternative B First Cost, $ 135,000 462,000 Annual Operating Cost, $/yr 76,000 34,600 Salvage value, $ 71,200 n/a Life, years 9 ∞