Use the financial information given below and develop the NPV of both the lease option. (Alternative A) and the buy option (Alternative B). Make sure to show all of your work. With the NPV, make your recommendation on what makes the most financial sense between buying or leasing. Also, let me know if you feel this will be 100% based on financials or if other factors will come into play? You're looking at expanding your facility footprint and must decide between two options: buy or lease. The cost of capital is 8 percent, and the tax rate is 35 percent. The building would be depreciated using a straight line with a $750,000 salvage value, and the building will be depreciated over three years (to keep it simple). Alternative A: Sign a three-year lease with annual lease payments of $525,000. You estimate that the building needs $100,000 in renovations before move-in. Alternative B: Buy a building for $1,800,000 and spend another $650,000 on renovations.
Use the financial information given below and develop the NPV of both the lease option. (Alternative A) and the buy option (Alternative B). Make sure to show all of your work. With the NPV, make your recommendation on what makes the most financial sense between buying or leasing. Also, let me know if you feel this will be 100% based on financials or if other factors will come into play? You're looking at expanding your facility footprint and must decide between two options: buy or lease. The cost of capital is 8 percent, and the tax rate is 35 percent. The building would be depreciated using a straight line with a $750,000 salvage value, and the building will be depreciated over three years (to keep it simple). Alternative A: Sign a three-year lease with annual lease payments of $525,000. You estimate that the building needs $100,000 in renovations before move-in. Alternative B: Buy a building for $1,800,000 and spend another $650,000 on renovations.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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please answer the question within 30 minutes with detailed explanation. Make sure calculation form part of the answer and are in details for better understanding. If calculations are not shown or are poorly done i will surely give negative ratings.
Transcribed Image Text:Use the financial information given below and
develop the NPV of both the lease option
(Alternative A) and the buy option (Alternative B).
Make sure to show all of your work. With the NPV,
make your recommendation on what makes the
most financial sense between buying or leasing.
Also, let me know if you feel this will be 100% based
on financials or if other factors will come into play?
You're looking at expanding your facility footprint
and must decide between two options: buy or lease.
The cost of capital is 8 percent, and the tax rate is 35
percent. The building would be depreciated using a
straight line with a $750,000 salvage value, and the
building will be depreciated over three years (to
keep it simple).
Alternative A: Sign a three-year lease with annual lease
payments of $525,000. You estimate that the building.
needs $100,000 in renovations before move-in.
Alternative B: Buy a building for $1,800,000 and spend
another $650,000 on renovations.
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