Q LTD is a telecommunication services provider looking to expand to a new territory Z; it is analyzing whether it should install its own telecom towers or lease them out from a prominent tower-sharing company T-share, Inc. Leasing out 100 towers would involve payment of $500,000 per year for 5 years.A residual payment of $700,000 will secure ownership of the tower if Q LTD decides to buy them at the end of the lease period.

Erecting 100 news towers would cost $2,000,000 including the cost of equipment and installation, etc. The company has to obtain a long-term secured loan of $2 million at 6% per annum.

Owning a tower has some associated maintenance costs such as security, power and fueling, which amounts to $1,000 per annum per tower.

The company’s tax rate is 45% while its long-term weighted average cost of debt is 6%. The tax laws allow straight-line depreciation for 5 years.

Make three options:

A, Purchase it with a bank loan

B, Using a Financial Lease where they would own the plant

C, Using an Operating Lease there they would not won the plant at the end.

Make Cash flows of three different options

A, Purchase it with a bank loan

B, Using a Financial Lease where they would own the plant

C, Using an Operating Lease there they would not won the plant at the end.

Show following details:

1. Loan amortization schedule

2. Cash flows of three different options