Current Attempt in ProgressCheyenne Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided tolocate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the buildingand related facilities.Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,851,800.An immediate down payment of $405,100 is required, and the remaining $1,446,700 would be paid off over 5 years at $369,600 peryear (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will besold for $503,100. As the owner of the property, the company will have the following out-of-pocket expenses each period.Property taxes (to be paid at the end of each year)Insurance (to be paid at the beginning of each year)Other (primarily maintenance which occurs at the end of each year)Click here to view factor tables.Present value $Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for CheyenneInc. if Cheyenne will lease the completed facility for 12 years. The annual costs for the lease would be $278,240. Cheyenne would haveno responsibility related to the facility over the 12 years. The terms of the lease are that Cheyenne would be required tomake 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, adeposit of $92,100 is required when the store is opened. This deposit will be returned at the end of the 12th year, assuming no unusualdamage to the building structure or fixtures.LeaseCheyenne Inc. shouldCompute the present value of lease vs purchase. (Currently, the cost of funds for Cheyenne Inc. is 9.00%.) (Round factor values to 5decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.)$Which of the two approaches should Cheyenne Inc. follow?$41,100V the facilities.27,150Purchase17,110$85.360

Lease refers to give the right to use the property or asset by one party to another party for a…

Cheyenne Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,851,800. An immediate down payment of $405,100 is required, and the remaining $1,446,700 would be paid off over 5 years at $369,600 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $503,100. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) Insurance (to be paid at the beginning of each year) Other (primarily maintenance which occurs at the end of each year) Click here to view factor tables. Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Cheyenne Inc. if Cheyenne will lease the completed facility for 12 years. The annual costs for the lease would be $278,240. Cheyenne would have no responsibility related to the facility over the 12 years. The terms of the lease are that Cheyenne would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $92,100 is required when the store is opened. This deposit will be returned at the end of the 12th year, assuming no unusual damage to the building structure or fixtures. Present value $ Compute the present value of lease vs purchase. (Currently, the cost of funds for Cheyenne Inc. is 9.00%.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.) Lease Cheyenne Inc. should $ Which of the two approaches should Cheyenne Inc. follow? $41,100 the facilities. 27,150 Purchase 17,110 $85,360

Cheyenne Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,851,800. An immediate down payment of $405,100 is required, and the remaining $1,446,700 would be paid off over 5 years at $369,600 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $503,100. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) Insurance (to be paid at the beginning of each year) Other (primarily maintenance which occurs at the end of each year) Click here to view factor tables. Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Cheyenne Inc. if Cheyenne will lease the completed facility for 12 years. The annual costs for the lease would be $278,240. Cheyenne would have no responsibility related to the facility over the 12 years. The terms of the lease are that Cheyenne would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $92,100 is required when the store is opened. This deposit will be returned at the end of the 12th year, assuming no unusual damage to the building structure or fixtures. Present value $ Compute the present value of lease vs purchase. (Currently, the cost of funds for Cheyenne Inc. is 9.00%.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 458,581.) Lease Cheyenne Inc. should $ Which of the two approaches should Cheyenne Inc. follow? $41,100 the facilities. 27,150 Purchase 17,110 $85,360

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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