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Determine the impacts of the sensitivity analysis

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Reference no: EM132199514

Assignment: Case Study - Canada Hardware

It is January 1st, 2018. You are a senior analyst at Canada Hardware Inc. (CHI), one of the top hardware, sports, and apparel providers in Canada with hundreds of stores across Canada. The CEO of Canada Hardware, Tony Stark, has reached out to you to look at two options regarding an investment, building on your analysis from Assignment 1 and Assignment 2.

Purpose

Under this case approach, you will demonstrate your ability to undertake a detailed analysis to evaluate the buy versus lease options for an investment proposal, on a qualitative and quantitative basis. You will also be required to calculate the weighted average cost of capital (WACC). A supplementary scenario analysis of leasing options is required.

How to Proceed
1. Create a title page with your purchase versus lease report name and author identification.

2. Explain the advantages and disadvantages of leasing, including the possible reasons, right or wrong, that would make a company lease an asset (from the lessor and lessee perspective).

3. Calculate the weighted average cost of capital (WACC) to use in your net advantage to leasing (NAL) analysis, rounding to the nearest one tenth of a percent.

4. Prepare your Net Advantage to Leasing analysis of the investment using the WACC as the discount rate. In addition, determine the impacts of the sensitivity analysis in the case, including
a. changes in payments from beginning of period to end;

b. changes in salvage value;

c. security deposit; and

d. the break-even lease payment.

5. Explain and evaluate if the investment should be purchased or leased, depending on the different scenarios analyzed.

6. Determine the classification of the lease option being considered, and indicate what the effect would be on the statement of financial position.

Format for Submission
Your report narratives may be done in Word or Excel, but calculations and tables of values must be prepared in Excel with the amounts derived from actual formulas that use your variables, rounded to four (4) decimals or lower.

The Excel tab worksheet must be print and presentation ready, formatted to print in 2 to 3 pages without page fragmentation of equations or tables between pages.

It is permissible to break your report down using the questions listed above as headings.

Attachment:- Assignment.rar

Verified Expert

This assignment contains solution for the comparison between the leasing and the purchasing analysis. The present value of the cash outflow in the lease of equipment is compared with the purchase of equipment. The recommendation is given for other scenarios such as change in the salvage value, change in the time of payment of lease rentals and payment of security deposit . Hence the net advantage of leasing is calculated for different scenarios.

Reference no: EM132199514

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Reviews

len2199514

12/20/2018 9:11:20 PM

Q5 Evaluation of Leasing Options Marks Student Recommendation for original option - lease or buy 2 Recommendation for scenarios: Change in payments 2 Changes in salvage value 2 Security deposit impact 2 Q6 Lease Classifcation Marks Student Determines correct leasing classification 4 Discusses impact on financial statements 4 Total 100 0

len2199514

12/20/2018 9:11:13 PM

Q4 Financial Forecast Marks Initial Analysis WACC utilized as discount rate 2 Appropriate year term applied 2 Correct use of initial investment 2 After-tax leasing payments calculated 2 Present value of after-tax leasing payments 2 Tax Shield calculation 6 Present value of Salvage value 2 Lease payments at beginning of period 2 Scenario Analysis A. Change in payments from beginning to end 4 B. Changes in Salvage Value 4 C. Impact of Security Deposit with end payments 4 D. Breakeven lease payment 4

len2199514

12/20/2018 9:11:07 PM

Q3 WACC Calculation Marks Student Weighted Cost of Equity ROE calculation 2 Retention calculation 2 Growth Calculation 2 Dividend/Stock calculation 2 Calculation of $ amount of Common Equity 2 Calculation of weight in capital of Common Equity 2 Weighted Cost of Debt After-tax cost of debt 2 Calculation of weight in capital of Debt 2 Weighted Cost of Preferred Equity Cost of Preferred Stock 2 Calculation of weight in capital of Preferred Stock 2

len2199514

12/20/2018 9:11:01 PM

Grading You will be assessed in accordance with the following rubric: Q1 Title Page, Readability, Format, Spelling and Grammar Marks Student Title Page, Readability, Format, Spelling & Grammar 12 Q2 Qualitative Discussion of Leasing vs. Purchasing Marks Student Advantages vs. Disadvantages 4 Reasons for Lessor to lease (at least three) 4 Reasons for Lessee to lease (at least three) 4

len2199514

12/20/2018 9:10:56 PM

Format for Submission Your report narratives may be done in Word or Excel, but calculations and tables of values must be prepared in Excel with the amounts derived from actual formulas that use your variables, rounded to four (4) decimals or lower. The Excel tab worksheet must be print and presentation ready, formatted to print in 2 to 3 pages without page fragmentation of equations or tables between pages. It is permissible to break your report down using the questions listed above as headings. Submit your report file(s) into the Assignment 3: Case Study dropbox on UM Learn. Your assignment must be submitted by the deadline date found in the course schedule provided in the Course Outline.

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