Differences between funding project via debt-equity finance

Reference no: EM133233813

Assignment:

Alternatively, Khaled Comms is also considering investment into 5G technology via leasing or buying the phone masts.

The purchase price is AED 22,000 and the machine has a 5-year life. If it buys the machine Jumeriah Comms will need to fund it using capital that costs them 9% per year.

Alternatively, the lease payments will be AED 5,250 per year for 5 years with rentals payable at the start of each year.

a. What are the respective present value costs of purchasing the machine or leasing it?

b. Explain the reasoning for the differences in cost linking to fundamentals of finance theory.

c. Critically evaluate the key differences between funding a project via debt or equity finance, from the perspective of the company directors.

d. At a recent board meeting one director proclaimed the company should fund all projects with internal sources of financing as they are essentially 'free' using logical arguments and finance theory explain why this statement is incorrect. Clearly explain the cost of each type of finance relative to the risk.

Reference no: EM133233813

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