please write a report around 500 words. SA SA INTERNATIONAL HOLDING LIMITED Sa S
ID: 2799895 • Letter: P
Question
please write a report around 500 words. SA SA INTERNATIONAL HOLDING LIMITED Sa Sa International Holding Limited (the "Company"), stock code 0178, is a listed com pany in the Hong Kong Stock Exchange Market. The Company is engaged in wholesale and retail of cosmetic products Assume the directors, Dr. Simon Kwok and Dr. Eleanor Law, have decided to expand its business and have liaised with the vendor, Ray Equipment, for a quotation. Ray Equipment has agreed to sell the equipment at a price of HKS3.8 million, at three-year MACRS depreciation. At the end of year four, the market value of the equipment is expected to be HK$250,000. Alternatively, the Company can lease the equipment from Ben Equipment Leasing. The lease agreement requires the lessee (the Company) to make four annual payments of HK$990,000, due at the beginning of each year; and the deposit of HK$200,000 will only be returned to the Company at the end of the lease term. The Company may issue bonds with the 11.5 percent yield rate, and the tax rate is 17 percent.Explanation / Answer
QUESTION 1 cost of bond before tax 11.50% TAX RATE 17% Value of buy option YEAR PARTICULARS AMOUNT PVF @11.5% PRESENT VALUE 0 COST OF MACHINERY -3800000 1 -3800000 3 SALVAGE VALUE after 3 years after tax 250000* (1-0.17) 207500 0.72 149400 NET COST -3650600 VALUE OF LEASE OPTION YEAR PARTICULARS AMOUNT TAX AFTER TAX PVF @11.5% PRESENT VALUE 0 CASH OUTLOWS -1190000 0 -1190000 1 -1190000 1 CASH OUTLOWS -990000 -202300 -787700 0.897 -706457 2 CASH OUTLOWS -990000 -168300 -821700 0.804 -660942 3 CASH OUTLOWS 200000 134300 65700 0.721 47395.9 NET COST -2510004 AS COMPARE TO ABOVE 2 OPTIONS IT IS BETTER TO GO FOR LEASING QUESTION 2 Value of buy option YEAR PARTICULARS AMOUNT PVF @11.5% PRESENT VALUE 0 COST OF MACHINERY -3800000 1 -3800000 2 SALVAGE VALUE after 3 years after tax 250000* (1-0.17) 1305000 0.8 1044000 NET COST -2756000 VALUE OF LEASE OPTION YEAR PARTICULARS AMOUNT TAX AFTER TAX PVF @11.5% PRESENT VALUE 0 CASH OUTLOWS -1780000 0 -1780000 1 -1780000 1 CASH OUTLOWS -1780000 -302600 -1477400 0.897 -1325022 2 CASH OUTLOWS 0 -302600 302600 0.804 243399.2 NET COST -2861623 AS COMPARE TO ABOVE 2 OPTIONS IT IS BETTER TO GO FOR BUY OPTION
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.