TeleFast is a telecommunication services provider looking to expand services into the South Florida area; it is
Question:
TeleFast is a telecommunication services provider looking to expand services into the South Florida area; it is analyzing whether it should install its own telecom towers or lease them out from a prominent tower-sharing company T-share, Inc.
Leasing out 100 towers would involve payment of $5,000,000 per year for 5 years.
Erecting 100 news towers would cost $18,000,000 including the cost of equipment and installation, etc. The company has to obtain a long-term secured loan of $18 million at 5% per annum.
Owning a tower has some associated maintenance costs such as security, power and fueling, which amounts to $10,000 per annum per tower.
The company's tax rate is 40% while its long-term weighted average cost of debt is 6%. The tax laws in Florida allow straight-line depreciation for 5 years.
Determine whether the company should erect its own towers or lease them out.
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella