Undecided Corp is considering the following alternatives in obtaining the use of a new piece of equipment at the end of 2012: Alternative #1: Buy the equipment and finance the purchase with new debt. Assume the debt has a rate of interest of 10%, and is an amortizing loan with end of year annual payments over five years, as follows: Year Payment Interest Principal Balance 2012 1,000 2013 264 100 164 836 2014 264 656 2015 264 66 198 458 2016 264 46 218 2017 264 24 240 84 180 240 Alternative #2: Lease the equipment under an operating lease (where the equipment is not reported as an asset and the lease payments each period are treated as an operating expense on the income statement) Alternative #3: Lease the equipment under a finance lease (where the equipment is reported as an asset and a liability is recorded equal to the present value of future lease payments) The fair value (and purchase price of the equipment is $1,000, and it has a five year life and no salvage value. If leased, the annual lease payment would be $264 due at the end of each year. The discount rate, which is equal to the rate on new debt, is 10%. The company uses straight line depreciation. (For illustration, assume the company can record the lease as either a financing or operating lease) 1. Complete the following table related to the buy decision: | 2012 | 2013 | 2014 | 2015 | 2016 2017 Reported net asset Reported net liability Rent/lease expense Depreciation expense Interest expense Total expenses Undecided Corp is considering the following alternatives in obtaining the use of a new piece of equipment at the end of 2012: Alternative #1: Buy the equipment and finance the purchase with new debt. Assume the debt has a rate of interest of 10%, and is an amortizing loan with end of year annual payments over five years, as follows: Year Payment Interest Principal Balance 2012 1,000 2013 264 100 164 836 2014 264 656 2015 264 66 198 458 2016 264 46 218 2017 264 24 240 84 180 240 Alternative #2: Lease the equipment under an operating lease (where the equipment is not reported as an asset and the lease payments each period are treated as an operating expense on the income statement) Alternative #3: Lease the equipment under a finance lease (where the equipment is reported as an asset and a liability is recorded equal to the present value of future lease payments) The fair value (and purchase price of the equipment is $1,000, and it has a five year life and no salvage value. If leased, the annual lease payment would be $264 due at the end of each year. The discount rate, which is equal to the rate on new debt, is 10%. The company uses straight line depreciation. (For illustration, assume the company can record the lease as either a financing or operating lease) 1. Complete the following table related to the buy decision: | 2012 | 2013 | 2014 | 2015 | 2016 2017 Reported net asset Reported net liability Rent/lease expense Depreciation expense Interest expense Total expenses