Computer-assisted manufacturing system from spain

Assignment Help Financial Management

Reference no: EM131852590

Guatemalan Corp. (GC) is trying to decide whether to lease or buy a new computer-assisted manufacturing system from Spain. Management has decided that it must use the system to remain competitive against foreign competitors. The system costs 60 million EUR and will be depreciated straight-line to zero over five years. GC’s effective tax rate is 30%, and the firm can borrow at 8%. Finn Leasing Company (FLC) has offered to lease the system to GC for over a five-year period with payments of 14 million EUR per year. FLC’s policy is to require its lessees to make payments at the start of the year.

a) What is the NPV of the lease for GC?

b) What is the maximum lease payment that would be acceptable for GC?

c) Suppose that the equipment is estimated to have a residual value of 5 million EUR at the end of the lease. Management feels that the higher degree of uncertainty for this cash flow justifies a 10% after-tax discount rate. What is the maximum lease payment acceptable to GC now?

d) In addition to the new assumption in part (c), suppose that FLC requires GC to pay 5 million EUR security deposit at the start of the lease that will be fully recovered at the end of the lease’s life. If the lease payment is still 14 million EUR, is it still advantageous for GC to lease the equipment?

Reference no: EM131852590

Questions Cloud

Why do we judge social issues like ethnocentrically : Why do we judge social issues like these ethnocentrically? When studying cultures from the sociological perspective, how important is it to assume a culturally.

Calculate npv for both conveyor belt systems : Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. Calculate the NPV for both conveyor belt systems.

Why is socialization important : Why is socialization important? How did Oxana's socialization contribute to her personality and behavior? Which theory of development-Cooley's, Mead's, Freud's.

What were the primary motives of soviet policy in cold war : In your own words, what were the primary motives of Soviet policy in the Cold War, as seen in VladislavZubok'sA Failed Empire?

Computer-assisted manufacturing system from spain : Guatemalan Corp. (GC) is trying to decide whether to lease or buy a new computer-assisted manufacturing system from Spain.

Discuss research on the efficacy of punishment : Class, conduct some brief online research on the efficacy of punishment as a deterrent or method of discipline for children.

Find the operating cash flow for the year : Find the operating cash flow for the year for Robinson and Sons if it had sales revenue of $79,300,000?,

Tell me what he did to make his presentation better : Tell me what the speaker might have done wrong in the first video, then, in the 2nd video, tell me what he did to make his presentation better.

Expect sources of information to be properly identified : Practice deciding when to cite sources Business people expect sources of information to be properly identified.

User Account

All Pages