Homework 9 from Lesson 10
Due: Sunday, December 2, 2018
You only need to submit one file to the Canvas dropbox: An Excel file (100 points): A spreadsheet showing your approach with your timeline, your calculations, and your solutions.
Question 2 (25 points):
Suppose for buying the new machine in Question 1, you can lease (operating lease) the machine for 8 years with annual operating lease payments (LP) of $125,000 (from year 1 to year 8). Considering income tax of 21% and minimum ROR of 12%, calculate the ATCF and NPV of leasing the machine using this leasing agreement. Compare your result with the previous question and use NPV analysis to determine which option to choose.
Question 3 (50 points):
Suppose for buying the new machine in question 1, you can lease the machine for 8 years using a capital lease with annual lease payments of $135,000 (from year 1 to year 8) and lease interest rate of 5%. Depreciation, revenue and operating cost will be similar to Question 1. Considering income tax of 21% and minimum ROR of 12%, calculate the ATCF and NPV of leasing the machine using this leasing agreement. Compare your result with the previous questions and use NPV analysis to determine which option to choose.
Please calculate and include the lease principal and interest calculations.