Flounder Inc. owns and operates a number of hardware stores in the New England region. Recently,...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Flounder Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,860,400. An immediate down payment of $414,200 is required, and the remaining $1,446,200 would be paid off over 5 years at $365,200 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $503,100. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) $41,140 Insurance (to be paid at the beginning of each year) 26,820 Other (primarily maintenance which occurs at the end of each year) 16,360 $84,320 Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Flounder Inc. if Flounder will lease the completed facility for 12 years. The annual costs for the lease would be $243,780. Flounder would have no responsibility related to the facility over the 12 years. The terms of the lease are that Flounder would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $99,900 is required when the store is opened. This deposit will be returned at the end of the 12th year, assuming no unusual damage to the building structure or fixtures. Click here to view factor tables. Compute the present value of lease vs purchase. (Currently, the cost of funds for Flounder Inc. is 11.00%) (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to O decimal places, e.g. 458,581.) Lease Present value $ Which of the two approaches should Flounder Inc. follow? Flounder Inc. should lease the facilities. Purchase Flounder Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,860,400. An immediate down payment of $414,200 is required, and the remaining $1,446,200 would be paid off over 5 years at $365,200 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $503,100. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) $41,140 Insurance (to be paid at the beginning of each year) 26,820 Other (primarily maintenance which occurs at the end of each year) 16,360 $84,320 Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Flounder Inc. if Flounder will lease the completed facility for 12 years. The annual costs for the lease would be $243,780. Flounder would have no responsibility related to the facility over the 12 years. The terms of the lease are that Flounder would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $99,900 is required when the store is opened. This deposit will be returned at the end of the 12th year, assuming no unusual damage to the building structure or fixtures. Click here to view factor tables. Compute the present value of lease vs purchase. (Currently, the cost of funds for Flounder Inc. is 11.00%) (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to O decimal places, e.g. 458,581.) Lease Present value $ Which of the two approaches should Flounder Inc. follow? Flounder Inc. should lease the facilities. Purchase
Expert Answer:
Related Book For
Posted Date:
Students also viewed these accounting questions
-
(Analysis of Lease vs. Purchase) Jose Rijo Inc. owns and operates a number of hardware stores in the New England region. Recently the company has decided to locate another store in a rapidly growing...
-
Dunn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is...
-
A 2-kg picture is hung by two wires of equal length. Each makes an angle of ? with the horizontal, as shown in Figure. (a) Find the general equation for the tension T, given ? and weight w for the...
-
Why should efforts to reduce turnover focus only on controllable costs?
-
Graph the line. 25 y = -=x+2 -10 8 6 -co 6 9. 2 6 1D
-
The mean height of students of a class is 125 centimeters, with a standard deviation of 4 centimeters. Apply Chebychevs Theorem to the data using k = 2. Interpret the results. Chebychev's Theorem The...
-
For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc, who is a continuing client. Jocelyn has assessed the control risk for the company at the maximum for all financial...
-
As a support worker, engage in a role play discussion with a peer about your client having a financial abuse as he wasn't able to withdraw money from the ATM. Discuss examples of variations to...
-
If UPI had simply offered to pay its employees wages and training expenses during their participation in a program of instruction subject entirely and exclusively to UPIs approval, would the element...
-
You've collected the following information for the most recent financial year of Ontario Iron: . Cash: $25 million Inventory: $42 million Total assets: $280 million Fraction of sales on credit: 100%...
-
Print Company acquired 80% of the stock of Sand Corp. on January 1, 2023. The stockholder's equity section of Sand's balance sheet at that date is as follows: Stockholder's Equity Section Common...
-
Fortunato Company, which had operated successfully in a single location for many years, opened a branch operation in another city. The products sold by Fortunato in its home office required federal...
-
Show me the full equation and explain why there is HCl. Martinez Company's ending inventory includes the following items: Units Cost per Unit NRV per Unit Product Helmets 39 $61 $57 32 85 53 57...
-
You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $ 2 . 5 0 a share at the end of the year ( D 1 = $ 2 . 5 0 ) and has a beta of 0 . 9 . The risk...
-
Read the discussion Looking outside the Jd/Mba Program Box and answer the following question: Is there a connection between the perceived level of collaboration and the availability of cross...
-
How does health insurance risk differ from other types of insurance risk (e.g., automobile or homeowners insurance)? What is the difference between cost sharing and cost shifting? Is retiree health...
-
Is an oscillating object in translational equilibrium?
-
How far above Farth's surface must a \(10,000-\mathrm{kg}\) boulder be moved to increase the mass of the Earthboulder system by \(2.50 \mathrm{mg}\) ? Assume the same ratio of energy change to mass...
-
Show that for small displacements the restoring force exerted on part 2 of the displaced string in Figure 15.14 is linearly proportional to the displacement of that part from its equilibrium...
Study smarter with the SolutionInn App