Reflections on Other Capital Budgeting Methods: The Board has specifically asked you to explain why Net Present Value has been used for this project versus the Payback Method, Internal Rate of Return and Accounting Rate of Return.

5. State your Financial Conclusions a. What is your recommendation to the Board as to whether the organization should Lease vs Buy? b. Are there other non-financial factors you should consider that need to be conveyed to the Board? c. How will the project be monitored for ongoing assessment of performance?

Please see below for the data points.

Assignment 3 Lease vs Buy template - Fall 2021 [Compatibility Mode] - Excel vegan Indies X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Share A3 Lease vs Buy A B C D E F G H J K 1 Assignment 3 Analysis N Lease vs Buy 5 Depreciation Rates 6 Year 1 2 3 4 5 7 IT Software Needed $ 1,200,000 8 5 Year MACRS Depreciation Rates 20.00% 32.00% 19.20% 11.52% 11.52% 9 Depreciation Amount $ 240,000 $ 384,000 $ 230,400 $ 138,240 $ 138,240 10 11 Cost of Buying Outright Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 12 1. Loan Interest Payments @ 10% 120,000) 120,000 (120,000 120,000) 120,000) 13 2. Tax Savings From Interest payment @ 30% 36,000 36,000 36,000 36,000 36,000 14 3. Principal Loan Payment (1,200,000) 15 4. Depreciation Tax Savings @ (30%) of MACRS Deprecition 72,000 115,200 69, 120 41,472 1,472 16 5. Residual value 200,000 17 6. Tax on residual value @ (30%) 60,000) 18 7. Net cash flow (12,000) 31,200 (14,880) (42,528) (1, 102,528) 19 Present Value of a $1 Rate (From PV Table) (7 %) 1.0000 0.93458 0.87344 0.8163 0.7629 .71299 20 12 $ (11,215) $ 27,251 $ (12, 147) $ (32,445) $ (786,091) 21 8. PV ownership Cash Flows Years 0 - 5 $ (814,646) 22 9. Cost of ownership 814,646 23 24 Cost of Leasing 25 10. Lease payment (300,000) 300,000) (300,000) 300,000) (300,000) 26 11. Tax savings from lease @ (30%) 90,000 90,000 90,000 90,000 90,000 OO 27 12. Net cash flow (210,000) 210,000 (210,000) 210,000) (210,000) 29 Present Value of a $1 Rate (From PV Table) (7 %) 1.0000 0.93458 0.87344 0.81630 .76290 0.71299 30 Present Value of Cash Flows $ 196,262) $ 183,422) $ (171,423) $ (160,209) $ (149,728) 31 13. PV Leasing Cash Flows Years 0 - 5 $ (861,044) 32 14. Cost of leasing 861,044 33 34 NAL=Cost of ownership-cost of leasing $46,398) 35 36 37 Sheet1 Sheet2 | Sheet3 + Ready + 100% Type here to search X P 100% 4 8 7 0 71) 8:25 PM E 12/4/2021