this problem, the applieable present-value and Mach 1, 2015. The Rosenteld Compa

Question

this problem, the applieable present-value and Mach 1, 2015. The Rosenteld Company wil ng Machine Corporation ble Rosenfeld by Danning 2. Pay $420,000 when 3. Make 10 annual installments of $135,000 he following first installment due on March 1 , 2016-20mde 1. Pay $1,000,000 in cash immediately future-value acquire first will inancing ediately, when the remainder 4. Make one lump-sum S1, The current international LIBOR rate is 6% tables t pieces alternatives are of a yment equipment $ 302 301 ,C0 r in 10 installments of $80 ,00, and the 000, with the first payment due immediately have its implicit interest rate is 8%. Rosenfeld c of $1,500,000 five i been from offiered t the Prepare a schedule showing altern schedule whether aliernative 3 above would be an operating lease years from March 1,2013 ing the various alternatives available to Rosenfeld. eld. Indicate on the

Explanation / Answer

Alternative -1 : Pay $100000 cash immediately Alternative-2: $420000 immediately and10 installment of $80000 Detail Amount Time PVF @ 8% Present Value Pay immediately 420000 0 1 $420,000 Annual Installment 80000 1-10 6.71 $536,800 Present Value of Cash Outflow $956,800 Alternative-3: Make 10 Annual Installment of $ 135000, First payment immediately Detail Amount Time PVF @ 8% Present Value Pay immediately 135000 0 1 $135,000 Annual Installment 135000 2-10 6.25 $843,750 Present Value of Cash Outflow $978,750 Alternative-4: Make 1 Lumpsump Payment of $1500000 at 5th Year Detail Amount Time PVF @ 8% Present Value Pay at 5th Year 1500000 5 0.681 $1,021,500 Present Value of Cash Outflow $1,021,500 Alternative -2: $420000 pay immediately and rest in 10 installment of $80,000 is beneficial because it's show lower present Value cash outflow as compare with other alternative. Alternative -3: Pay 10 Annual installment of $ 135000 is a Capital lease, because it consist of major portion of total cost of equipment.

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