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HB482EX3_FALL04

# HB482EX3_FALL04 - Part I Part II Part III Part IV Part V...

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Max Rec’d Part I 25 Name (Please Print) Part II 10 Part III 20 Part IV 20 Part V 25 Total 100 EXAM III HB 482 FALL, 2004 Schmidgall Part I – (25 points) A cafe is planning to obtain a new computer for its operations. Its options are to buy or lease. Related data is as follows: Buy Lease Cost \$20,000 Initial payment: \$8,000 S.V. (for depreciation purposes) -0- Term of lease = 3 years Life 3 years Repairs: covered by lessor. Depr. Method: DDB Type of lease: operating Annual repairs: \$2,000 Purchase option (end of lease) \$500 Annual labor (operator) \$25,000 Annual labor (operator) \$25,000 Additional Information: Average tax rate = 30% Marginal tax rate = 35% Cost of capital = 12% Expected disposal value at end of three years = \$1,000 (whether purchased or leased) Required: Analyze the above and determine if the range should be purchased or leased. Include only relevant costs in your calculations. (Show all of your work!) Page 1 of 5

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HB482EX3_FALL04 - Part I Part II Part III Part IV Part V...

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