b. Miss Liza's cousin, Abu Bakar is a financial manager for Fish Curry Berhad (FCB), has been asked to perform a lease-versus-buy analysis on a new computer system. The computer costs RM1,200,000, and, if it is purchased, FCB could obtain a term loan for the full amount at a 10% cost. The computer is classified as special purpose, it will be depreciated using straight-line for six years. After 6 years, the computer will be sold, and Abu Bakar's best estimate of its residual value at that time is RM125,000. As an alternative, Alexis Leasing is willing to write a 6-year lease on the computer, including maintenance, for payment of RM340,000 at the beginning of each year. FCB marginal tax rate is 40%. From the above information, help Abu Bakar conduct his analysis by preparing the Cash Flows Analysis, showing clearly the Net Advantage to Leasing (NAL). Based on the NAL, should FCB lease or buy the computer?

Radley Co. is growing its business and is currently deciding how to finance this programme. Following some research, the business decides that it can either (1) issue bonds and use the money to buy the necessary assets, or (2) lease the assets for an extended period of time. Please respond to the following questions without understanding the relative costs involved:   a. What benefits might leasing the assets have over purchasing them?   b. What drawbacks can leasing the assets have in comparison to buying them?   c. How would leasing the assets vary from issuing bonds and buying the assets in terms of how it will impact the Statement of Financial Position?

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!!!USING RATE OF RETURN (ROR) METHOD!!!  A company that sells computers has proposed to a small public utility company that it purchase a small electronic computer for P1,000,000 to replace ten calculating machines and their operators. An annual service maintenance contract for the computer will be provided at a cost of P100,000 per year. One operator will be required at a salary of P96,000 per year and one programmer at a salary of P144,000 per year. The expected economical life of the computer is 10 years.   The calculating machine costs P7,000 each when new, 5 years ago, and presently can be sold for P2,000 each. They have an estimated life of 8 years and an expected ultimate trade-in value of P1,000 each. Each calculating machine operator receives P84,000 per year. Fringe benefits for all labor cost 8% of annual salary. Annual maintenance costs on the calculating machines have been P500 each. Taxes and insurance on all equipment is 2% of the first cost per year.  If the capital…

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Suppose you work for a data processing company who needs a new supercomputer now. Your company can either buy the supercomputer for $400,000 or lease it from a computer leasing company through an operating lease. The maintenance will be provided by the leasing company. Your company will not incur any other costs except the lease payment. But the annual maintenance cost will cost the leasing company$25,000 per year for four years. The lease terms require your company to make four annual payments at the beginning of each year. The computer could be depreciated for tax purposes straight-line over four years and it will have no residual value at the end of year 4. The interest rate is 12%. Suppose the tax rate paid by your company is 21% but the leasing company pays only 15% tax due to carried over losses from their previous operation.    What is the pre-tax lease payment amount that will help the leasing company break even within 4 years if it requires 8% return. What is the NPV of the…

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Alissa Stack has identified an industrial building to purchase to be leased to Jesse's Shoes for light manufacturing. She has located a property that Jesse's shoes will leased (triple-net) for $2,000,000 per year. She believe she can purchase property for a 6.25% cap rate. What is the price of the of the industrial building?

(Related to Checkpoint 18.2) (Calculating the cost of short-term financing) The R. Morin Construction Company needs to borrow $110,000 to help finance the cost of a new $165,000 hydraulic crane used in the firm's commercial construction business. The crane will pay for itself in one year, and the firm is considering the following alternatives for financing its purchase: Alternative A. The firm's bank has agreed to lend the $110,000 at a rate of 13 percent. Interest would be discounted, and a 15 percent compensating balance would be required. However, the compensating-balance requirement is not binding on the firm because it normally maintains a minimum demand deposit (checking account) balance of $27,500 in the bank. Alternative B. The equipment dealer has agreed to finance the equipment with a 1-year loan. The $110,000 loan requires payment of principal and interest totaling $128,909. a. Which alternative should Morin select? b. If the bank's compensating-balance requirement had…

Your cousin has created a business specialised in 3-D printing of metal spare parts for repair shops. For the purchase of one machine, she is considering two different models (project A and B). You are to assist her in making the best choice. Assume an investment horizon of 6 years and a required rate of return of 10%. Assume no corporate or business tax on purchase, income or resale. No computation is required for the depreciation of the machine. After talking to technical professionals and the marketing manager, you have gathered the following information: (*) Operating cash flow margin % is equal to operating cash flow divided by sales. Operating cash flows are equal to sales minus all the recurring cash cost associated to production and sales. Operating cash flow margin % is constant over the period. Please show your workings carefully.  a) Compute the Net Present Value of both project A and B b) Compute the Internal Rate of Return of both projects. Explain your result c) Assume…