Incremental borrowing rate

Assignment Help Operation Management

Reference no: EM131012744

Flying Monkey Enterprise and Planes Inc. separately approach you (Magical Financial Consultants) to design a lease. The specifics are as follows. Lessee: Flying Monkey Enterprise. Incremental borrowing rate is 12%. Lessor: Planes Inc. (A plane manufacturer.) Expected rate of return is 10%.Leased asset: An airplane. Fair value of asset: $ 10 million. Cost for lessor to manufacture the plane is $8m. Economic life: 20 years. Lessor insists that the residual value be guaranteed. A schedule of residual value is in the table attached. In your meeting with Flying Monkey Enterprise, it insisted that the lease be designed as an operating lease because it does not want to ruin its balance sheet with an enormous liability. In your meeting with Planes Inc., it insisted that the lease be designed as a sales type lease. Required: How long can the lease be at most before it become impossible for us to have an operating lease for the lessee? How can we structure the lease (e.g. lease term and the treatment ofresidual value) so that it is an operating lease for lessee and a capital lease for lessor? Where is the magic? Suppose you succeed in making the lease operating for lessee and capital for lessor. On whose balance sheet is the airplane now?

Reference no: EM131012744

Questions Cloud

Concerning the definiteness of an offer : 1-Which of the following statements is true concerning the definiteness of an offer? A-The offeree's terms must be clear enough to provide a court with a basis for granting a remedy. B-Price terms may not be left open in valid offers for ..

Calculate earnings per share and EPS : Suppose a company has no debt outstanding and a total market value of $90,000. Earnings before interest and taxes, EBIT, are projected to be $8,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 p..

How long will it take you to pay off the loan : You have an outstanding student loan with required payments of $600 per month for the next four years. The interest rate on the loan is 10% APR (monthly). Now that you realize your best investment is to prepay your student loan, you decide to prepay ..

Incorporates our agreement : Argot wrote Palm offering to sell him specified merchandise with the offer to remain open 30 days. Ten days later, Argot and Palm orally agreed on the terms of the sale, and Argot prepared a latter which he sent to Palm stating, "This incorporates o..

Incremental borrowing rate : Flying Monkey Enterprise and Planes Inc. separately approach you (Magical Financial Consultants) to design a lease. The specifics are as follows. Lessee: Flying Monkey Enterprise. Incremental borrowing rate is 12%. Lessor: Planes Inc. (A plane man..

Common proportional share : Andrews Company has $80,000 available to pay dividends. It has 2,000 shares of 10%, $100 par, preferred stock and 30,000 shares of $10 par common stock outstanding.

Harco is a retailer of appliances : Harco is a retailer of appliances. Harco buys its inventory from RST. Inc., the manufacturer. To finance its inventory, Harco buys appliances from RST on credit, signing a promissory note and giving RST a security interest in the inventory. RST pe..

Calculate the internal resultant normal force n : Beam AC has been cut at D, and the left section free-body diagram is shown. Calculate the internal resultant normal force N, shear force V , and bending moment at D, M. Use the sign convention for internal resultant loading in a beam.

A retail outlet of a large sporting goods company : Marsha has recently been hired to work in sales at a retail outlet of a large sporting goods company. Marsha receives a base salary and a bonus depending on the amount of sales that he makes in a month. She earns a bonus in any month that her sales a..

User Account

All Pages