Cullumber Inc. owns and operates a number of hardware stores in the Atlantic region. Recently, the company has decided to open another store in a rapidly growing area of Nova Scotia. The company is trying to decide whether to purchase or lease the building and related facilities. Currently, the cost of funds for Cullumber Inc is 12%. Purchase: Lease: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,880,000. An immediate down payment of $355,000 is required, and the remaining $1.525,000 would be paid off over five years with payments of $365,000 per year (including interest payments made at the end of the year). The property is expected to have a useful life of 12 years, and then it will be sold for $590,000. As the owner of the property, the company will pay $50,000 in occupancy expenses at the end of each year. First National Bank has agreed to purchase the site construct the building and install the appropriate fixtures for Cullumber Inc.it Cullumber will lease the completed facility for 12 years. The annual payments would be $299,000 Cullumber would have no responsibility related to the facility over the 12 years. The terms of the lease are that Cullumber would be required to make 12 annual payments. (The first payment is to be made at the time the store opens and then one each following year) In addition, a deposit of $140,000 is required when the store is opened. This deposit will be returned at the end of the twelfth year, assuming there is no unusual damage to the building structure or fixtures. Assume a 12% discount rate. X Your answer is incorrect Using tactor tables, calculate the present value of the net cash flows required of Cullumber Inc. for: (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answers to O decimal places, es 5,275.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE Present Value 1. The purchase alternative 539400 2. The lease alternative $ 1370060 e Textbook and Media Assistance Used e Textbook 1 c Textbook 2 Your answer is incorrect Which of the two alternatives should Cullumber Inc adopt? Cullumber Inc. should adopt the purchase alternative. e Textbook and Media Crane Repairs Ltd. has several minor lawsuits outstanding on December 31, 2019. To determine the amount of liability to recognize on the statement of financial position crane decides to use expected cash flow techniques. Based on discussions with the company's lawyers, Crane estimates the expected cash outflows associated with the lawsuits, as shown below. Cash Flow Estimate Probability x Assessment - Expected Cash Flow 2020 $4,200 60% $ 2,520 7,600 40% 3,040 Total $5,560 2021 $6,500 30% $1.950 7.900 50% 3.950 8.800 20% 1,760 Total $7,660 Calculate the present value of the lawsuits assuming a risk-free rate of 5% and cash flows occurring at the end of the year. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 2 decimal places, eg 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1 Cash Flow Estimate Probability Expected * Assessment - Cash Flow 2020 $4,200 60% $ 2.520 7.600 40% 3,040 Total $5,560 2021 $6,500 3096 $ 1.950 7.900 50% 3.950 8,800 20% 1.760 Total $7,660 Calculate the present value of the lawsuits assuming a risk-free rate of 5% and cash flows occurring at the end of the year. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answer to 2 decimal places, eg. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1 Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Present value $
