Case 2_question

Case 2_question - Case 2 Part I - Leases Earlier, Conner...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Case 2 Part I - Leases Earlier, Conner and Martin asked you to analyze four proposals for acquiring a very expensive, very large piece of equipment (refer to Accounting in Action, Chapter 10). None of the proposals they asked you to review involved leasing the new equipment. In light of concerns expressed about the potentially short period of time before new technology makes a new machine obsolete, you are surprised that leasing was not considered. From what you remember, leasing provides some real benefits. Recall that the fair value of the new equipment is approximately $685,000 and is expected to have an economic life of eight years. When the possibility of leasing equipment is discussed, both Conner and Martin express much interest. They have had prior business dealings with Tyler Leasing Company, and the results have been satisfactory. You call Buzz Tyler and ask him about leasing the new equipment; the next day, he sends you the following proposal: Tyler Leasing Company would acquire the equipment and lease it to CM 2 . The lease payments would be $145,661 for five years, paid at the beginning of each period. CM 2 would guarantee the residual value of $125,000 at the end of the lease period. The fair market value of similar equipment is $685,000. The implicit interest rate in this offer is 10%, which is also CM 2’s borrowing rate.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/01/2012 for the course ACCT 531 taught by Professor Janicecharko during the Winter '11 term at Humber.

Page1 / 2

Case 2_question - Case 2 Part I - Leases Earlier, Conner...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online