Essay on Amg/Forsythe: Lease vs. Buy

Global Financial Corporation (GF) a subsidiary of Global Equipment Company (GEC) is tasked with handling financing for those customers who wish to purchase GEC heavy equipment. Currently GF only processes 51% of the leases within the “10 days or less” time frame, with some loans taking up above 41 days. Ms. Rodriguez, the Vice President of GF has been directed to decrease loan processing time to 10 days or less with the current staff she has. The current structure of the analysis and evaluation stage does not maximize staff time effectively and as a consequence creates a bottleneck in the process. We recommend switching to a case manager structure. lLan applications can be processed and

This is a scenario presented where by an organization is willing to procure Discopress gadgets. The firm is willing to make a $10,000 capital investment. The case study below seeks to answer the question on the best approach, so as to spend as little on acquisition cost. While at the same time ensuring that, they get maximum returns on their initial investment. This however, has placed them in a position of two scenarios as they seek to ensure maximum returns on the investment. The study seeks to determine whether the MOD option is viable, as they look for value for their money.

The proposed LBO deal of Comark Building Systems is an attractive investment for Brazos because it fits into Brazos’ “sweet spot”- a reasonable priced company with solid cash flow and good management. We can project cash flow at $6.8 million in 2002 and $12.3 million in 2006. In terms of the purchase price at $40 million, it is very attractive because we can get very good Total Post Money Valuation at $194 million. We can also confirm that the Market Value/EBITDA (1.38) of CoMark is lower than its competitor’s (3.42) when we compare multiple ratios, which means CoMark is undervalued. However, there are two major concerns; gaining competitive advantage and determining comparable valuations.

Therefore in this agreement the equipment is going to be partially financed by the lessor (Northwest) through a third-party financial institution (Lender) and act as a leveraged lease, wherein the lending company holds the title to the leased asset, while the lessor creates the agreement with the lessee (BNRR) and collects the payment for the use of the equipment. Therefore the lease in this case will be regarded as a financial decision for BNRR

We assumed that the cost of graphite which according to exhibit 8 has been growing slower year on year would grow steadily at 4% and that power costs would grow at 12% per year up to 1989. We also assumed that the benefits of laminate technology will only be felt starting in 1981. With 1980 as the base year, the NPV calculation was done as at December, 1980 and we assumed that the cash injection of $2.5million dollars would occur instantaneously in December 1980. Using a median assumption of power cost savings of 17.5%, we arrive at an NPV of $12.865million for the laminate investment. The applicable range and full calculations are presented below.

Agro-Chem, Inc. is a regional producer of agricultural chemicals based in Houston Texas that needs help making a lease versus purchase decision. By understanding the material presented, we will be able to come to a decision. However, after reviewing the information presented, there are a few problems that need to be investigated before finalizing our recommendation. Agro-Chem, Inc. chose to go with the financial manager’s idea of using a discount rate of 14% (average risk) to figure out the present value costs of leasing and purchasing even though the assistant treasure suggested a 12% (low risk) discount rate. Agro-Chem, Inc. brought in the company’s CPA to help settle the debate

The third and final question from the case is how would the lease classification change under U.S. GAAP. The FASB codification that deals with leases is ASC 840. U.S. GAAP classifies leases as operating leases or capital leases and it has a section for sale-leaseback transactions as well. Under U.S. GAAP, the lease in this case would be classified as a capital lease. This is because ASC 840-10-25-29 says, “If at its inception a lease meets any of the four lease classification criteria in paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease.” This lease meets two of those criterions. The lease term is equal to 75% of the economic life of the equipment (3 year lease term / 4 year economic life of equipment = .75 or 75%) and the present value of the minimum lease payments “equals or exceeds 90 percent of the excess of the fair value of the lease property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor” (ASC 840-10-25-1d). The present value of the minimum lease payments does in fact equal or exceed 90 percent of the fair value of the equipment ($248,690 / $265,000 = .94 or 94%). Under ASC 840-10-25-31, the lessee should use the implicit rate to calculate the present value of the lease payments because the lessee already

The Data Acquisition System (DAS) is initially estimated to cost $41.25 million if purchased outright. This purchase can be done using currently invested short-term marketable securities. Leasing is also an option with payments estimated at $12.75 million per year. After analyzing each scenario using the discounted cash flow method, the best option is to lease the equipment rather than purchase it. The net present value (NPV) for leasing the DAS is a negative ($28.10 million) and the NPV for the purchasing the DAS is a negative ($28.64 million). Our net advantage for leasing is $0.543 million.

Option 2 (Proceed with Mid-Rise Apartment Complex, Selling in Year 10): While replacing the current structure with a more appealing mid-rise apartment complex would increase the market value of the property, it would also require financing and additional investments. Thus far, Sexton has run into several problems, beginning with the planning commission, and now higher cost estimates, financing and timing issues. Even if Sexton were to obtain financing and somehow meet the January 2005 target date, his original estimates of rental income and cash flow analysis are still not guaranteed. Exhibit 2 provides a net present value range between 103,000 and $214,000 for proceeding with the mid-rise apartment complex and selling in year 10 based on a range of cap rates.

The cost of implementation of the options: It deals with the technicians and the reduction in time of implementation. This leads to better customer service and increases efficiency of the technicians. Also considering a customer base reduction of 5% (Exhibit 2), $1 million dollars will be a prudent investment.

Following this review, it is my recommendation that we enter into a contract for the purchase of the equipment in question before the end of the year for the following reasons. Currently, our tax rate is not particularly favorable. We have experienced some small reductions in the late 1970’s, however the introduction of Supply-Side economics

Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Natalie decides to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)

4. Maintenance: Maintenance cost is high for purchased products as after manufacturing warranty runs out customers need to pay maintenance cost.

Some individuals may believe that buying a home is part of the American dream and that renting an apartment does not compare, yet satisfied renters would disagree. Even though owning a home provides a sense of security while allowing modifications without permission, renting is preferred more often over buying because the expense of updating, monthly payments combined with utilities, and paying insurance on a home comes with a high price tag. A homeowner does have several luxuries such as forming lasting friendships with their neighbors, making landscaping changes to their yard, painting and designing their home. While that remains true, renting an apartment comes with several different options and

The upgrade of the Rotterdam plant involves implementing the Japanese technology and requires a capital expenditure of £8.0 million with £3.5 million spent today, £2.0 million on year one, £1.0 million on year two and £1.0 million on year three. This will also increase polypropylene output by 7% from current levels at a rate of 2.0% per year. In addition, gross margin will improve by 0.8% per year from 11.5% to 16.0%. After auditing the financial models, it is concluded that the static net present value of the upgrade is -£6.35 million using a discount rate of 10% and an expected inflation rate of 3% annually. The Rotterdam upgrade contains an option to switch to the speculated German technology being available in five years. The current value of the option is zero as it is deeply out-of-the-money. The total net present value of the upgrade is -£6.35 million. The incremental earnings per share of the upgrade is £ 0.0013, the payback period is 14.13 years, and the internal rate of return is 18.7%.