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bio- POS (L02,4) (Analysis of Alternatives) Assume that Wal-Mart Stores, Inc. has decided to surface and maintain for 10 years a Vacant lot next to one of its stores to serve as a parking lot for customers, Management is considering the following bids involve ing two different qualities of surfacing for a parking area of 12,000 square yards Bid A: A surface that costs $5.75 per square yard to install. This surface will have to be replaced at the end of 5 years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface. Bid B: A surface that costs $10.50 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 9 cents per square yard, C urs A and B will be able to perform the required vear-end maintenan 10, and the machine will be purchased on January 1, from which vendor should the press ntenance, that Ellison's cost of funds is d the press be purchased? h McDowell Enterprises. Although ense" for numbers and has helped the illion in sales). With the business growing in which James Kirk feels a little "over nswers to questions relating to the following ase contract for newly constructed truck terminals P6-9 (L02,4) (Analysis of Business Problems) James Kirk is a financial James Nirk has not had any formal training in finance or accounting, he has a "good sense company grow from a very small company ($500.000 sales) to a large operation (S45 million in sales steadily, however, the company needs to make a number of difficult financial his head." He therefore has decided to hire a new employee with "numbers" expertise to whom to employ, he has decided to ask each prospective employee to prepare answers to questo situations he has encountered recently. Here are the questions. ca) in 2016, McDowell Enterprises negotiated and closed a lone term lease contract for new e t storage facilities. The buildings were constructed on land owned by the company. On January McDowell took possession of the leased property. The 20-year lease is effective for the period December 31, 2036. Advance rental payments of $800,000 are payable to the lessor (OWT effective for the period January 1, 2017, through ital payments of $800,000 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 $400.000 are due on January for each 10 years of the lease term. McDowell has an option to purchase all the leased facilities for Sl on December 31,00 the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was approxima $7,200,000. If the company had borrowed the money to purchase the facilities, it would have had to pay 10% interest Should the company have purchased rather than leased the facilities? (b) Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,000 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost $90,000. What is the fair value of the note? (c) The company has always followed the policy to take any cash discounts on goods purchased. Recently, the company purchased a large amount of raw materials at a price of $800,000 with terms 1/10, 1/30 on which it took the discount Problems 309 McDowell has recently estimated its cost of funds at 10%. Should McDowell continue this policy of always taking the cash discount