Question
James Kirk is a financial executive with Oriole Enterprises. Although James Kirk has not had any formal training in finance or accounting, he has a
James Kirk is a financial executive with Oriole Enterprises. Although James Kirk 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 ($507,000 sales) to a large operation ($45,630,000 in sales). With the business growing steadily, however, the company needs to make a number of difficult financial decisions in which James Kirk 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 the following situations he has encountered recently. Here are the questions.
ames Kirk is a financial executive with Oriole Enterprises. Although James Kirk 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 ($507,000 sales) to a large operation ($45,630,000 in sales). With the business growing steadily, however, the company needs to make a number of difficult financial decisions in which ames kirk eels a little over his head. He therefore has decided to hire a ne w empo e with numners expertise t hep him. As a basis order mining no empi y he ha decide os each, prospective employee to prepare answers to questions relating to the following situations he has encountered recently. Here are the questions In 2016, Oriole Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2017, Oriole took possession of the leased property. The 20-year lease is effective for the period January 1, 2017, through December 31, 2036. Advance rental payments of $875,000 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 $432,000 are due on January 1 for each of the last 10 years of the lease term. Oriole has an option to purchase all the leased facilities or1 on December 31, 2036 At the me the lease was negotiated the air value of the truck te mi als and eight storage ac ties as appro mately ! 00. the company had borrowed the money to purchase the facilities, it would have had to pay 10% interest. Compute the present value of lease vs purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to odecimal places, e.g. 458,581.) Lease Purchase Present value Should the company have purchased rather than leased the facilities? Oriole Enterprises should the facilitiesStep by Step Solution
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