NOTAP tease versus Buy Excel Online Structured Activity: Lease versus Buy Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a bank loan for 100% of the required amount. Alternatively, a Texas investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that these facts apply L. The equipment falls in the MACRS 3-year class 2. Estimated maintenance expenses are $54,000 per year. 3. The firm's tax rate is 39% 4. If the money is borrowed, the bank loan will be at a rate of 13%, amortired in six equal installments at the end of each year 5. The tentative lease terms call for payments of $200,000 at the end of each year for 3 years. The lease is a guideline lease 6. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance 7. Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the base terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $240,000, but it could be much higher or lower under certain circumstances of purchased at Year 3, the used equipment would fall into the MACRS 3-year dass Sadik would actually be able to make the purchase on the last day of the year tie, lightly before Year 3). so Sada would get to take the first depreciar expense at Year the remaining depreciation expenses would be at Year 4 through Year 6). On the timeline, Sadik would show the cost of the used equipment at Year 3 and its depreciation experies starting at Year 3. Year 3-year MACRS 1 3333 14.45 4 7.41 The date has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below Open spreadsheet To si management in making the proper se versus buy decision, you are asked to answer the following questions - What is the net advantage of losing? She Sadik take the lease do not round Intermediate calculations. Round your answer to the nearest doll het odvantage of lesings Since the cost of asing the machinery is than the cost of owning it, the firm should the ment 3. The tentative lease terms call for payments of $280,000 at the end of each year for 3 years. The lease a guidelines 6. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance 7. Sadik must use the equipment is to continue in business, so will most certainly want to acquire the property at the end of these. If it does the under the best purchase the machinery at its fait market value Year. The best estimate of this market value is $240,000, but it could be much higher or lower under certainment at years, the used equipment would into the MACRS 3 year class. Sadik would actually be able to make the purchase on the last day of the year lightwear would get to take the first depreciation expense at Year the remaining depreciation expenses would be at year thoughYear). On the timeline, Sadik wo show the cost of the equipment at Year 3 and its depreciation expenses starting at Year 3 Year 3-year MACRS 1 2 44.45 14.81 7.4196 4 The data has been collected in the Microsoft Excel Onlinele below. Open the spreadsheet and perform the required analysis to answer the questions below Open spreadsheet To assist management in making the proper ese versus buy decision, you are asked to answer the following questions What is the net advantage of leasing Should Sadik take the lease? Do not round Intermediate calculations. Round your answer to the nearest doar Net advantage of leasing Since the cost of leasing the machinery is than the cost of owning it, the firm should the equipment The decision most can be considered a bet on the future residual value. Do you think the residual cash flows are equal in rise to the other can were you discount vetem Tous higher rate, you a better NPV - the NPV of negative cash flow streamless negative at high discount rates) Check My Work Res Problem aty Lease versus Buy Q Sear 5. The tentatives arms call for payments of $280,000 the end of each year for years. The lease is guideline lease 6. Under the proposed ise terms, the most pay force, property and maintenance 7. Sadik must use the content in business, so willmost certainly want to acquire the property at the end of the lardons, the under the leme terms.com purchase the machinery is for market valestes. The best estimate of this market value $240.000, but could be much tugher or lower under certain circumstances. If purchase Year, the used bonent would ta the year dess Sadik would actually be able to make the purchase on the last day of the yearly before Year 3). Sadik would get to see the first section setyear the remaining depreciation expenses would be at years through year 6). On the timeline, Sadik would show the cost of me wed pantat Year and speciation experingat year Year 3-year MARS 1 333 2 The theme in the center and perform there to answer the question below than the ning the should Ole Structuur Santik tedestres most 1 milion of new machinery in its es plant. It can obtain a banks for 100s of the required amount. Alternatively, a Te investment Baring fra ents a youpotoses that one for finance an Aure that these facts oly: 1. The open the MARSyar 2. maintenance pre 54,000 per year 3. The state is 10 If the showed the bank loan will be tarte of amortize in sual instaliments at the end of each year 5. The morements of 30,000 the end of each year for years. These is a goldelines Under the room, the must pay formance property and attenance 7. Sunt the equipment to consen, so will most certainly want to in the property at the end of the lease. If it does the under the term it can purchase the machinery at the marvet Year. The estimate of this market value is $240.000, but could be much higher or lower under one. I purchased the wedient would all the MRS 3 years. Sadia would actually be able to make the purchase on the last day of the years before 3). So wat stereotion to the remaining depreciation would be through your 6). On the time in Sadik would show the conter the set and its constatar Year-year MACRS 333 2 > - NOTAP tease versus Buy Excel Online Structured Activity: Lease versus Buy Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a bank loan for 100% of the required amount. Alternatively, a Texas investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that these facts apply L. The equipment falls in the MACRS 3-year class 2. Estimated maintenance expenses are $54,000 per year. 3. The firm's tax rate is 39% 4. If the money is borrowed, the bank loan will be at a rate of 13%, amortired in six equal installments at the end of each year 5. The tentative lease terms call for payments of $200,000 at the end of each year for 3 years. The lease is a guideline lease 6. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance 7. Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the base terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $240,000, but it could be much higher or lower under certain circumstances of purchased at Year 3, the used equipment would fall into the MACRS 3-year dass Sadik would actually be able to make the purchase on the last day of the year tie, lightly before Year 3). so Sada would get to take the first depreciar expense at Year the remaining depreciation expenses would be at Year 4 through Year 6). On the timeline, Sadik would show the cost of the used equipment at Year 3 and its depreciation experies starting at Year 3. Year 3-year MACRS 1 3333 14.45 4 7.41 The date has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below Open spreadsheet To si management in making the proper se versus buy decision, you are asked to answer the following questions - What is the net advantage of losing? She Sadik take the lease do not round Intermediate calculations. Round your answer to the nearest doll het odvantage of lesings Since the cost of asing the machinery is than the cost of owning it, the firm should the ment 3. The tentative lease terms call for payments of $280,000 at the end of each year for 3 years. The lease a guidelines 6. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance 7. Sadik must use the equipment is to continue in business, so will most certainly want to acquire the property at the end of these. If it does the under the best purchase the machinery at its fait market value Year. The best estimate of this market value is $240,000, but it could be much higher or lower under certainment at years, the used equipment would into the MACRS 3 year class. Sadik would actually be able to make the purchase on the last day of the year lightwear would get to take the first depreciation expense at Year the remaining depreciation expenses would be at year thoughYear). On the timeline, Sadik wo show the cost of the equipment at Year 3 and its depreciation expenses starting at Year 3 Year 3-year MACRS 1 2 44.45 14.81 7.4196 4 The data has been collected in the Microsoft Excel Onlinele below. Open the spreadsheet and perform the required analysis to answer the questions below Open spreadsheet To assist management in making the proper ese versus buy decision, you are asked to answer the following questions What is the net advantage of leasing Should Sadik take the lease? Do not round Intermediate calculations. Round your answer to the nearest doar Net advantage of leasing Since the cost of leasing the machinery is than the cost of owning it, the firm should the equipment The decision most can be considered a bet on the future residual value. Do you think the residual cash flows are equal in rise to the other can were you discount vetem Tous higher rate, you a better NPV - the NPV of negative cash flow streamless negative at high discount rates) Check My Work Res Problem aty Lease versus Buy Q Sear 5. The tentatives arms call for payments of $280,000 the end of each year for years. The lease is guideline lease 6. Under the proposed ise terms, the most pay force, property and maintenance 7. Sadik must use the content in business, so willmost certainly want to acquire the property at the end of the lardons, the under the leme terms.com purchase the machinery is for market valestes. The best estimate of this market value $240.000, but could be much tugher or lower under certain circumstances. If purchase Year, the used bonent would ta the year dess Sadik would actually be able to make the purchase on the last day of the yearly before Year 3). Sadik would get to see the first section setyear the remaining depreciation expenses would be at years through year 6). On the timeline, Sadik would show the cost of me wed pantat Year and speciation experingat year Year 3-year MARS 1 333 2 The theme in the center and perform there to answer the question below than the ning the should Ole Structuur Santik tedestres most 1 milion of new machinery in its es plant. It can obtain a banks for 100s of the required amount. Alternatively, a Te investment Baring fra ents a youpotoses that one for finance an Aure that these facts oly: 1. The open the MARSyar 2. maintenance pre 54,000 per year 3. The state is 10 If the showed the bank loan will be tarte of amortize in sual instaliments at the end of each year 5. The morements of 30,000 the end of each year for years. These is a goldelines Under the room, the must pay formance property and attenance 7. Sunt the equipment to consen, so will most certainly want to in the property at the end of the lease. If it does the under the term it can purchase the machinery at the marvet Year. The estimate of this market value is $240.000, but could be much higher or lower under one. I purchased the wedient would all the MRS 3 years. Sadia would actually be able to make the purchase on the last day of the years before 3). So wat stereotion to the remaining depreciation would be through your 6). On the time in Sadik would show the conter the set and its constatar Year-year MACRS 333 2 >