Wildhorse Inc owns and operates a number of hardware stores in the Atlantic region Recently, the company has decided to open another store in a rapidly growing area of Nova Scotia The company is trying to decide whether to purchase or lease the building and related facilities Currently, the cost of funds for Wildhorse Inc is 12 Purchase The company can purchase the site, construct the building, and purchase all store fixtures The cost would be $1,830,000 An immediate down payment of $390,000 is required, and the remaining $1,440,000 would be paid off over five years with payments of $348,000 per year (including interest payments made at the end of the year) The property is expected to have a useful life of 12 years, and then it will be sold for $560,000 As the owner of the property, the company will pay $52,000 in occupancy expenses at the end of each year Lease First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Wildhorse Inc if Wildhorse will lease the completed facility for 12 years The annual payments would be $289,000 Wildhorse would have no responsibility related to the facility over the 12 years The terms of the lease are that Wildhorse would be required to make 12 annual payments (The first payment is to be made at the time the store opens and then one each following year ) In addition, a deposit of $115,000 is required when the store is opened This deposit will be returned at the end of the twelfth year, assuming there is no unusual damage to the building structure or fixtures Assume a 12 discount rate Using a financial calculator, calculate the present value of the net cash flows required of Wildhorse Inc for (Round answers to 2 decimal places, e g 5,275 25 ) Click here to view the factor table PRESENT VALUE OF 1 Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1 Present Value 1 The purchase alternative $ 2 The lease alternative Hint For the annuity due for the lease payments, program your calculator to annuity due or calculate a regular annuity for 11 years and add the first payment to convert a regular annuity to an annuity due $ Which of the two approaches should Wildhorse Inc adopt Wildhorse Inc should adopt the Choose the answer from the menu in accordance to the question statement leasepurchase approach

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Wildhorse Inc. owns and operates a number of hardware stores in the Atlantic region. Recently, the company has decided to open another store in a

Wildhorse Inc. owns and operates a number of hardware stores in the Atlantic region. Recently, the company has decided to open another store in a rapidly growing area of Nova Scotia. The company is trying to decide whether to purchase or lease the building and related facilities. Currently, the cost of funds for Wildhorse Inc. is 12%.

Purchase:		The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,830,000. An immediate down payment of $390,000 is required, and the remaining $1,440,000 would be paid off over five years with payments of $348,000 per year (including interest payments made at the end of the year). The property is expected to have a useful life of 12 years, and then it will be sold for $560,000. As the owner of the property, the company will pay $52,000 in occupancy expenses at the end of each year.
Lease:		First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Wildhorse Inc. if Wildhorse will lease the completed facility for 12 years. The annual payments would be $289,000. Wildhorse would have no responsibility related to the facility over the 12 years. The terms of the lease are that Wildhorse would be required to make 12 annual payments. (The first payment is to be made at the time the store opens and then one each following year.) In addition, a deposit of $115,000 is required when the store is opened. This deposit will be returned at the end of the twelfth year, assuming there is no unusual damage to the building structure or fixtures. Assume a 12% discount rate.

Using a financial calculator, calculate the present value of the net cash flows required of Wildhorse Inc. for: (Round answers to 2 decimal places, e.g. 5,275.25.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

		Present Value
1.	The purchase alternative.	$
2.	The lease alternative. Hint: For the annuity due for the lease payments, program your calculator to annuity due or calculate a regular annuity for 11 years and add the first payment to convert a regular annuity to an annuity due.	$

Which of the two approaches should Wildhorse Inc. adopt? Wildhorse Inc. should adopt the Choose the answer from the menu in accordance to the question statement

leasepurchase

approach.