Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 companys 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

3. Which one is better options.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Markets Investments And Financial Management

Authors: Daisy Scott

1st Edition

1639892001, 9781639892006

More Books

Students also viewed these Finance questions

Question

Outline the regulatory framework for workplace health and safety

Answered: 1 week ago