Buy vs. Lease Equipment Decision Tree
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Buy vs. Lease Equipment Decision Tree
Use the information in the table below to decide whether you want to lease versus buy new technology.
Calculate expected value of each outcome and show your calculations (Probability X Impact).
Explain the best option based on the outcome, and why.
The biggest concerns or risks with purchasing technology are the rapid changes that happen in technology and the low end-of-life value of technology. Therefore, there is a 40 percent chance that the leased equipment will have better contractual value at the end of the lease-period . Alternatively, there is an 85 percent chance that purchasing new technology will have a lower-than-expected value at the end of the project life. The cost for the technology, if leased, is $11,500, versus the cost of purchasing a new technology, which is $15,000.
Cost to buy a new technology-$15,000
Probability of having lower-than-expected value at the end of the project life.-85%
Probability of that the leased equipment will have better contractual value at the end of the lease-period.-40%
Cost of maintenance for the new equipment.-$5,000
Cost of maintenance for the leased equipment.-$2,500
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- Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?A small manufacturer has won a major contract with the Oman Defence Force to develop a new generation of satellite phone for battlefield applications. Because of the significant technological challenges involved in this project and the company's own size limitations and lack of experience in dealing with the army on these kinds of contracts, the company has decided to partner with another firm in order to collaborate on developing the technology. This decision would be an example of what kind of response to the risk? i of Select one: O Transfer it. O Avoid it. O Accept it O Share it. Minimize it.
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- An office manager is deciding on a paper shredder to be purchased for her legal firm. Three suppliers have provided information about their shredders, including MTBF and MTTR for the models under evaluation. Use the information shown in the table to calculate the system availability for each supplier's shredder. Supplier A Supplier B Supplier C MTBF (hours) MTTR (hours) 70 110 75 8 7 Which supplier should the office manager select if she chooses the supplier with the best system availability? The system availability of supplier A is (Enter your response rounded to four decimal places.) The system availability of supplier B is . (Enter your response rounded to four decimal places.) The system availability of supplier C is (Enter your response rounded to four decimal places.) On the basis of system availability, supplier should be selected.Break-Even Analysis You own a business selling burgers. It costs Php 7.00 to make one burger and that is your variable cost. You sell each burger for Php 12.50. Your cost for rent, utilities, overhead, etc. is Php 100,000 per month. How many burgers you would need to sell to break even? What should be the selling price per burger if the break-even point will be brought down to 15,000 burgers?Your company operates a fleet of light trucks that are used to provide contract delivery services. As the engineering and technical manager, you are analyzing the purchase of 55 new trucks as an addition to the fleet. These trucks would be used for a new contract the sales staff is trying to obtain. If purchased, the trucks would cost $21,200 each; estimated use is 20,000 miles per year per truck; estimated operation and maintenance and other related expenses (year-zero dollars) are $0.45 per mile, which is forecasted to increase at the rate of 5% per year; and the trucks are MACRS (GDS) three-year property class assets. The analysis period is four years; t = 38%; MARR = 15% per year (after taxes; includes an inflation component); and the estimated MV at the end of four years (in year-zero dollars) is 35% of the purchase price of the vehicles. This estimate is expected to increase at the rate of 2% per year. Based on an after-tax, actual-dollar analysis, what is the annual revenue…
