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Unformatted text preview: to equal the $3 million initial loan principal. The
annual end-of-year payments on this loan will be $1,206,345 over the next 3
years. Depreciation, maintenance, insurance, and other costs will have the same
costs and treatments under this alternative, as those described before for the
straight debt financing alternative. 708 PART 6 Special Topics in Managerial Finance Financial Lease The waste disposal system can be leased from First International Capital. The lease will require annual end-of-year payments of
$1,200,000 over the next 3 years. All maintenance costs will be paid by the
lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the system for $220,000 at termination of the lease at
the end of 3 years.
Denise decided first to determine which of the debt financing alternatives—
debt or debt with warrants—would least burden the firm’s cash flows over the
next 3 years. In this regard, she felt that very few, if any, warrants would be
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This document was uploaded on 01/19/2014.
- Fall '13