Please don't give image format Pina Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locateanother store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building andrelated facilities.Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,858,400.An immediate down payment of $419,000 is required, and the remaining $1,439,400 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 $503,700. 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 tablesLease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Pina Inc. ifPina will lease the completed facility for 12 years. The annual costs for the lease would be $278,100. Pina would have no responsibilityrelated to the facility over the 12 years. The terms of the lease are that Pina would be required to make 12 annual payments (the firstpayment to be made at the time the store opens and then each following year). In addition, a deposit of $104,800 is required when thestore is opened. This deposit will be returned at the end of the 12th year, assuming no unusual damage to the building structure orfixtures.Present value $Compute the present value of lease vs purchase. (Currently, the cost of funds for Pina Inc. is 9%.) (Round factor values to 5 decimalplaces, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.)LeaseWhich of the two approaches should Pina Inc. follow?Pina Inc. should$41,96027,480the facilities16,650Purchase$86,090

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

Pina 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 $1,858,400. An immediate down payment of $419,000 is required, and the remaining $1,439,400 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 $503,700. 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) Present value $ Pina Inc. should Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Pina Inc. if Pina will lease the completed facility for 12 years. The annual costs for the lease would be $278,100. Pina would have no responsibility related to the facility over the 12 years. The terms of the lease are that Pina 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 $104,800 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. Click here to view factor tables Compute the present value of lease vs purchase. (Currently, the cost of funds for Pina Inc. is 9%.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Lease Which of the two approaches should Pina Inc. follow? the facilities $41,960 Purchase 27,480 16,650 $86,090

Pina 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 $1,858,400. An immediate down payment of $419,000 is required, and the remaining $1,439,400 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 $503,700. 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) Present value $ Pina Inc. should Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Pina Inc. if Pina will lease the completed facility for 12 years. The annual costs for the lease would be $278,100. Pina would have no responsibility related to the facility over the 12 years. The terms of the lease are that Pina 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 $104,800 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. Click here to view factor tables Compute the present value of lease vs purchase. (Currently, the cost of funds for Pina Inc. is 9%.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Lease Which of the two approaches should Pina Inc. follow? the facilities $41,960 Purchase 27,480 16,650 $86,090

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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