Question
James Halabi is a financial executive with Cullumber Company. Although James has not had any formal training in finance or accounting, he has a good
James Halabi is a financial executive with Cullumber Company. Although James has not had any formal training in finance or accounting, he has a good sense for numbers and has helped the company grow from a very small company ($510,000 sales) to a large operation ($46 million is sales). With the business growing steadily, however, the company needs to make a number of difficult financial decisions in which James Halabi feels a little over his head. He therefore has decided to hire a new employee with numbers expertise to help him. As a basis for determining whom to employ, he has decided to ask each prospective employee to prepare answers to questions relating to situations he has encountered recently. The following are the facts for the first question asked of prospective employees. In 2019, Cullumber Enterprises negotiated and closed a lease contract for newly constructed truck terminals and freight storage facilities. On January 1, 2020, Cullumber took possession of the leased property. The 20-year lease is effective for the period January 1, 2020, through December 31, 2039. Advance rental payments of $810,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of $408,000 are due on January 1 for each of the last 10 years of the lease term. Cullumber has an option to purchase all the leased facilities for $1 on December 31, 2039. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was approximately $7.29 million. If the company had borrowed the money to purchase the facilities, it would have had to pay 10% interest.
Should Cullumber lease or buy the storage facilities?
The company should have Choose the answer from the menu in accordance to the question statement purchasedleased the facilities. |
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