Question: Hi-tech Software Ltd. (HSL) has a complete Software Developing Unit costing ` 70 lakhs. It is this type of block of assets that have no

Hi-tech Software Ltd. (HSL) has a complete "Software Developing Unit" costing ` 70 lakhs. It is this type of block of assets that have no book value as at 31st March, 2016 as it entitled to 100% rate of depreciation under Income Tax Act, 1961. The company is facing acute fund crunch as it lacks order from Middle East and was toying with the idea of taking term loan. Eastern Financier (EF), a reputed finance company, gave the idea of "buy & lease back" to tide over the fund crunch. EF agreed to buy the software developing unit at ` 50 lakhs and lease it back to HSL for lease rental of ` 9 lakhs p.a. for a period of 5 years. HSL decides to put the entire net proceeds in a fixed deposit at a nationalized bank at yearly interest of 8.75% for 5 years to generate cash flow much needed for day to day operation. Central Financier (CF) another financier, gave a proposal of selling a similar software developing unit at ` 30 lakhs to HSL and they will buy back after 5 years at a price of ` 5 lakhs provided the Annual Maintenance Contract (AMC) @ ` 1.50 lakhs per annum is entrusted to them. The new machine is also entitled to 100% rate of depreciation under Income Tax Act, 1961. CF also agreed to buy the existing software developing unit at ` 50 lakhs. HSL would utilize the net sale proceeds to finance this machine. The marginal rate of tax of HSL is 34% and its weighted average cost of capital is 12%. Which offer HSL should accept?

Using the Chipotle example we have discussed in class imagine that all employees are paid $15/hour, the grill costs $300, and each cash register costs $200. All other utensils and items come at zero cost. Applying the principles of business process improvement that we have discussed in class, what is the lowest cost Chipotle can achieve with the highest flow rate?

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