My Courses My NotificationsContent Collection Question 13 10 out of 10 peints 1.

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My Courses My NotificationsContent Collection Question 13 10 out of 10 peints 1. A company has to make a choice Choice 1 is to lease a warehouse for 10 years at an initial payment of 100,000 Dhs now and make annual lease payments of 30,000 Dhs After 10 years it can return the warehouse by paying 10,000 Dhs painting and decoration costs Choice 2 is to buy the warehouse now for 200,000 Dhs. It will need a maintenance contract for which it will pay 5,000 Dhs per year At the end of the 10 years the warehouse can be sold for 40,000 Dhs Assuming an interest rate of 12% should the company lease or buy the warehouse? Show all calculations supporting your docs on Use PW method Question Cost of Leasing Cost of Buying Will you buy or Lease ? Question 14 5 out of 5 points A ca.11 center in India used by U·S. and u.r. credit eard helder, has a espastey et ,400,000 eau, annually. The fixed ecst of the eestez i, ;775,000 with an average vaziabi·co.t et and reve su, ot s2.so per eali a rind the percentage ot the eail capacsey that must be placed each year to bresk even aced esc

Explanation / Answer

ANSWER:

13) COST OF LEASING :

INITIAL PAYMENT = DHS 100,000

ANNUAL LEASE PAYMENTS = DHS 30,000

PAINTING AND DECORATION COSTS = DHS 10,000

I = 12%

N = 10 YEARS

PW OF LEASING = 100,000 + 30,000(P/A,12%,10) + 10,000(P/F,12%,10)

PW OF LEASING = 100,000 + 30,000 * 5.650 + 10,000 * .3220 = 100,000 + 169,500 + 3220 = 272,720 DHS

SO THE COST OF LEASING IS 272,720 DHS

COST OF BUYING :

INITIAL BUYING COST = 200,000 DHS

MAINTENANCE COST = 5,000 DHS

WAREHOUSE SELLING COSTS = 40,000 DHS

I = 12%

N = 10 YEARS

PW OF BUYING = 200,000 + 5,000(P/A,12%,10) - 40,000(P/F,12%,10) = 200,000 + 5000 * 5.65 - 40,000 * 0.3220 = 200,000 + 28,250 - 12,880 = 215,370 DHS

COST OF BUYING = 215,370 DHS

SINCE THE COST OF LEASING IS MORE THEN THE COST OF BUYING THAT IS 272,720 > 215,370 , THEREFORE WE CHOOSE BUYING AS IT HAS A LOWER COST.

QUESTION NO 14 ( CANNOT SEE CLEARLY)

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