Font Paragraph Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialized equipment for production. Nick Warf, the company president has found a vendor for the equipment. Clapton Acoustical Equipment has olieredt sell Warf Computers the necessary equipment ata price of $6.1 million. Because oft rapid development of new technology, the equipment falls in the three year MACHS or class. At the end of four years, the market value of the equipment is expectedt be $780,000. Alternatively, the company can lease equipment from Hendrix Leasing. The lease contract calls for four annual payments of $1.48 million due at the beginning of the year. Additionally, Warf Computers must make a security deposit of $400,000 that will be returned when the lease expires. Warf Computers can issue bonds with a yield of 11 percent, and the company has a marginal tax rate of 21 percent 1. Should Warf buy or lease the equipment? 2. IN the leasing discussion, James informs Nick that the contract could include a purchase option for the equipment at the end of the lease. Hendrix Leasing offers three purchase options: a. An option to purchase the equipment at the fair market value b. An option to purchase the equipment at a fixad price. The price will be negotiated before 335 . of a here to search Font Paragraph the lease is signed. AN option to purchase the equipment at a price of $250,000. How would the inclusion of a purchase option affect the value of the lease? James also informs Nick that the lease contract can include a cancellation option. The cancellation option would allow Warf Computers to cancel the lease on any anniversary date of the contract. To contact the lease, Warf Computers would be required to give 30 days' notice prior to the anniversary date. How would the inclusion of a cancellation option affect the value of the lease? Font Paragraph Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialized equipment for production. Nick Warf, the company president has found a vendor for the equipment. Clapton Acoustical Equipment has olieredt sell Warf Computers the necessary equipment ata price of $6.1 million. Because oft rapid development of new technology, the equipment falls in the three year MACHS or class. At the end of four years, the market value of the equipment is expectedt be $780,000. Alternatively, the company can lease equipment from Hendrix Leasing. The lease contract calls for four annual payments of $1.48 million due at the beginning of the year. Additionally, Warf Computers must make a security deposit of $400,000 that will be returned when the lease expires. Warf Computers can issue bonds with a yield of 11 percent, and the company has a marginal tax rate of 21 percent 1. Should Warf buy or lease the equipment? 2. IN the leasing discussion, James informs Nick that the contract could include a purchase option for the equipment at the end of the lease. Hendrix Leasing offers three purchase options: a. An option to purchase the equipment at the fair market value b. An option to purchase the equipment at a fixad price. The price will be negotiated before 335 . of a here to search Font Paragraph the lease is signed. AN option to purchase the equipment at a price of $250,000. How would the inclusion of a purchase option affect the value of the lease? James also informs Nick that the lease contract can include a cancellation option. The cancellation option would allow Warf Computers to cancel the lease on any anniversary date of the contract. To contact the lease, Warf Computers would be required to give 30 days' notice prior to the anniversary date. How would the inclusion of a cancellation option affect the value of the lease
