Reference no: EM131188311
B-Tel, Inc. is a telecommunication services provider looking to expand to a new territory Z; it is analyzing whether it should install its own telecom towers or lease them out from a prominent tower-sharing company T-share, Inc.
Leasing out 100 towers would involve payment of $500,000 per year for 5 years.
Erecting 100 news towers would cost $2,000,000 including the cost of equipment and installation, etc. The company has to obtain a long-term secured loan of $2 million at 6% per annum.
Owning a tower has some associated maintenance costs such as security, power and fueling, which amounts to $1,000 per annum per tower.
The company’s tax rate is 45% while its long-term weighted average cost of debt is 6%. The tax laws allow straight-line depreciation for 5 years.
Determine whether the company should erect its own towers or lease them out.
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: B-Tel, Inc. is a telecommunication services provider looking to expand to a new territory Z; it is analyzing whether it should install its own telecom towers or lease them out from a prominent tower-sharing company T-share, Inc. Determine whether the..
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