Based on the following information, please answer the following questions. Please complete an excel spreadsheet to show the repayments.
What type of lease structure is Rudra proposing in its bid? (Explain)
Explain the concept of an annuity. If Rudra takes out a loan, what installment payments would be required to repay the loan? (PLS ALSO COMPLETE EXCEL SPREADSHEET)
Rudra will fund the difference of $70,800.
The lease period for the generator leasing business between Rudra and Baroda UP Gramin Bank is six years, with the lease payment remaining the same for the first three years. After three years, Rudra is allowed to increase the lease payment by 10% in the fourth year, and the increased amount has to be maintained for the remaining lease period. Hairiya: We can think of taking a loan as well. Our bank would be ready to fund at most 80 per cent of the capital expense, at 10 per cent interest, payable in equal instalments on an annual basis. A 30 per cent corporate tax would provide us with a tax shield, and the actual interest paid by us in terms of cash flow might be even lower. We have to fund the rest through Rudra's cash reserves. What is the contract period? Patra: The lease is for six years, with the lease payment remaining the same for the first three years. We are allowed to increase the lease payment by 10 per cent in the fourth year, and [it] has to be If Rudra takes out a loan for the purchase of the 100 diesel generator sets, the loan repayment amount would depend on the loan amount, the interest rate, and the loan term. The passage mentions that the bank is willing to fund up to 80% of the capital expense at 10% interest, payable in equal annual installments. Assuming the loan amount is $283,200 ($354,00080%), the interest rate is 10%, and the loan term is six years, the annual installment payments required to repay the loan would be $61,771.14 (calculated using a loan amortization calculator). However, this calculation does not take into account the tax shield from the corporate tax, which could potentially lower the actual interest paid by Rudra and, therefore, the installment payments required to repay the loan. The March 2020 contract offered by Baroda Bank for the lease of 100 DG sets was the opportunity that Hairiya and Patra had been anticipating for some time. Their company could expand from operating strictly in the highly competitive business of providing DG maintenance services into the new, vertical business market of leasing DG sets. Both Hairiya and Patra were eager to explore this lucrative new opportunity, which they hoped would bring a much-needed longer-term revenue scope and help diversify their business. The proposal was required to be structured in the form of a lease, rather than a sale, and had to include all incidental and operational costs. The COVID-19 lockdown had made the entire Rudra staff unavailable. Therefore, the task of calculating the pricing in the bid proposal for the lease of all equipment and services rested on Hairiya and Patra. The two company executives were able to meet in person to discuss and prepare their proposal. After inquiring about the well-being of each other's families, especially under the dire circumstances of the pandemic, the two co-workers started with a conversation about the business: Patra: How are our field workers doing? Were they able to attend to the emergency maintenance calls that we received? Hairiya: I have been in regular touch with our field workers and office staff; all are keeping good health. Some of our field workers were able to go and attend to the DG emergencies at our hospital clients. They are taking all precautions. Luckily, local administration has classified DG The lease period for the generator leasing business between Rudra and Baroda UP Gramin Bank is six years, with the lease payment remaining the same for the first three years. After three years, Rudra is allowed to increase the lease payment by 10% in the fourth year, and the increased amount has to be maintained for the remaining lease period. Hairiya: We can think of taking a loan as well. Our bank would be ready to fund at most 80 per cent of the capital expense, at 10 per cent interest, payable in equal instalments on an annual basis. A 30 per cent corporate tax would provide us with a tax shield, and the actual interest paid by us in terms of cash flow might be even lower. We have to fund the rest through Rudra's cash reserves. What is the contract period? Patra: The lease is for six years, with the lease payment remaining the same for the first three years. We are allowed to increase the lease payment by 10 per cent in the fourth year, and [it] has to be If Rudra takes out a loan for the purchase of the 100 diesel generator sets, the loan repayment amount would depend on the loan amount, the interest rate, and the loan term. The passage mentions that the bank is willing to fund up to 80% of the capital expense at 10% interest, payable in equal annual installments. Assuming the loan amount is $283,200 ($354,00080%), the interest rate is 10%, and the loan term is six years, the annual installment payments required to repay the loan would be $61,771.14 (calculated using a loan amortization calculator). However, this calculation does not take into account the tax shield from the corporate tax, which could potentially lower the actual interest paid by Rudra and, therefore, the installment payments required to repay the loan. The March 2020 contract offered by Baroda Bank for the lease of 100 DG sets was the opportunity that Hairiya and Patra had been anticipating for some time. Their company could expand from operating strictly in the highly competitive business of providing DG maintenance services into the new, vertical business market of leasing DG sets. Both Hairiya and Patra were eager to explore this lucrative new opportunity, which they hoped would bring a much-needed longer-term revenue scope and help diversify their business. The proposal was required to be structured in the form of a lease, rather than a sale, and had to include all incidental and operational costs. The COVID-19 lockdown had made the entire Rudra staff unavailable. Therefore, the task of calculating the pricing in the bid proposal for the lease of all equipment and services rested on Hairiya and Patra. The two company executives were able to meet in person to discuss and prepare their proposal. After inquiring about the well-being of each other's families, especially under the dire circumstances of the pandemic, the two co-workers started with a conversation about the business: Patra: How are our field workers doing? Were they able to attend to the emergency maintenance calls that we received? Hairiya: I have been in regular touch with our field workers and office staff; all are keeping good health. Some of our field workers were able to go and attend to the DG emergencies at our hospital clients. They are taking all precautions. Luckily, local administration has classified DG
