please help me with this project

Case Facts Daiwan Semi-Conductors Company has a large backlog of customer orders among their automotive clients, in part due to chip shortages. Therefore, Daiwan needs to acquire a new machine used to lay silicon wafers onto computer processor chips in an effort to increase their production capacity. There are 2 suppliers who could supply the new machinery: Howard Packard and Marcosoft. Each company offers both financing and leasing alternatives for each of their respective offerings. Daiwan Semis CEO, Dr. Wei, is an electrical engineer. He is a technological master but has limited understanding of finance. This fact has been a huge frustration for you. Using the case facts outlined below and the methods used in class, your task is to determine which of the options below you would recommend. 1. Lease from Howard Packard 2. Purchase from Howard Packard (using debt financing) 3. Lease from Macrosoft 4. Purchase from Macrosoft (using debt financing) Please be sure to include a brief rationale supporting your conclusion. Making reference to specific metrics is highly recommended. Daiwan Semi-Conductors Uses a discount rate of 14% for assessing all new investments Is subject to an income tax rate of 25 % Howard Packard - The sale price, aka acquisition cost for the equipment is $125,000. A. The Lease from Howard Packard i. Has a duration of 5 years ii. Has an annual lease payment of $30,000 (before tax) iii. Requires no Down Payment (no initial investment) B. The Financing Option from Howard Packard i. Requires no down payment, i.e. it is financed 100% through debt, at 8% an annual interest rate, with annual principal and interest payments. The loan will be repaid in full in 5 years (5 total end-of-year payments). ii. The useful life of the asset is 5 years, i.e. after 5 years it has no remaining value. ii. CCA (depreciation for tax purposes) is an equal $25,000 for each of the 5 years of the assets useful life. Macrosofts equipment costs $150,000. A. The Lease from Macrosoft i. Has a duration of 5 years ii. Has an annual lease payment of $36,000 (before tax) iii. Requires no Down Payment (no initial investment) B. The Financing Option from Macrosoft i. Requires a $15,000 down-payment, i.e. it is financed 80% through debt, at a 7.5% annual interest, with annual principal and interest payments. The loan will be repaid in full in 5 years (5 total end-of-year payments). ii. The useful life of the asset is 5 years, i.e. after 5 years it has no remaining value. iii. CCA (depreciation for tax purposes) is an equal $30,000 for each of the 5 years of the assets useful life.

**HINT If you have organized your HP analysis well, then considering the MSFT alternative can be a very quick activity by creating a copy of your sheet and changing the relevant assumptions/inputs.

Short Answers

1. What is your conclusion and recommendation to Dr Wei as to the best alternative among those below? How did you determine this? a. Lease from Howard Packard b. Purchase from Howard Packard (using debt financing) c. Lease from Macrosoft d. Purchase from Macrosoft (using debt financing)

2. After presenting your conclusion, Dr. Wei replied to you saying, Oops, I forgot to mention that Macrosofts equipment is higher quality than HPs and can therefore produce more products. We anticipate annual pre-tax Gross Margins of $72,000 as a direct result of using HPs machine and $88,000 from Macrosofts machine. Does this new information change your conclusion? Why?

3. Dr. Wei is a technological master, but he has little respect for the field of finance. He said: a. Sorry, I have one more question before I pay your consulting fee. I dont understand your rationale. I have $140,000 in the bank. Why should I not just purchase HPs equipment with cash on hand, and place your report in the recycling bin?