A firm needs a data center with a life of three years. After three years, the data center is not needed and has no salvage value. The firm is deciding on the least costly alternative to access the data center. Under Plan A, the firm can incur an upfront cost of $120, 000. For this amount, the firm can purchase the center and move in immediately and use the facility. Under Plan B, the firm may lease the data center from owners on a monthly basis. The monthly rent is $3, 500. The firm’s borrowing cost based on APR (annual percentage rate) is 5% with semiannual compounding. Which option would you recommend to the firm? Purchase or rent? Show work. (20 pts.)

Answers

Answer 1

Answer:

Answer:

Recommendation : The firm should lease the data center

Explanation:

To determine which option is better, we would compare the upfront cost of option A to the present value of the lease payment.

The present value of the lease payment is given as follows:

PV = A× 1-1+r^(-n) /r

A- semi-annual lease payment - 3,500× 6 = 21,000

r- semi-annual interest rate = 5%/2 = 2.5%

n- number of period = 3× 2 = 6.(note that interest is compounded semi- annually i.e every six month)

PV of the lease payment = 21,000 × (1 - 1.025^(-6))/0.025 =115,670.63.

Comparing the two options, we have :

Purchase cost = 120,000

Lease cost = 115,670.63.

The lease cost is lower and would save the firm 4329.37 i.e (120,000 - 115,670.63)

Recommendation : The firm should lease the data center

Answer 2

Answer:

Final answer:

When comparing the cost of purchasing a data center outright versus leasing it on a monthly basis over three years, it is slightly more cost effective, factoring in the present value of money, for the firm to lease the data center. The total present value cost of leasing is approximately $119,199.09, while purchasing would be $120,000.

Explanation:

The subject matter of this question involves determining the least expensive option for accessing a data center over a span of three years, given two possibilities: purchasing the center outright (Plan A), or leasing it on a monthly basis (Plan B). It's a form of capital budgeting, specifically a cost comparison method.

For Plan A, the upfront cost is $120,000. This cost is incurred immediately and there are no further costs associated with it for the three-year period.

Plan B needs to be evaluated using the time value of money because the monthly lease payments are made over time. Given the borrowing cost/APR of 5% and the semiannual compounding, it means the interest is compounded twice a year. The monthly cost of leasing the data center is $3,500. Over three years (36 months), this would amount to $3,500 x 36 = $126,000.

However, since we need to factor in the cost of borrowing, we need to calculate the present value (PV) of the lease payments. Because the interest is compounded semiannually, the effective monthly interest rate is (1+0.05/2)^(2/12)-1

= 0.00407412378303.

Using this to calculate the present value of an ordinary annuity formula:

P V = $3,500 x (1-(1+0.00407412378303)^-36)/0.00407412378303.

P V under Plan B is approximately $119,199.09.

Comparing the two plans, it's evident that Plan B (leasing) is the cheaper option by just under $1,000. Therefore, it would be more cost-effective for the firm to lease the data center rather than purchasing it outright.

Learn more about Cost comparison here:

brainly.com/question/33292944

#SPJ3

Related Questions

What is the payback period for the following set of cash flows? (Round your answer to 2 decimal places, e.g., 32.16.) Year Cash Flow 0 –$ 5,500 1 1,525 2 1,725 3 2,125 4 1,625
Assume a closed economy. In the long run, an increase in the saving rate Group of answer choices doesn’t change the level of productivity or income. raises the levels of both productivity and income. raises the level of productivity but not the level of income. raises the level of income but not the level of productivity.
Retirement planning should begin at what age?
_____ occurs when a creditor obtains a court order that directs an employer to set aside a portion of an employee's wages to pay a debt owed to the creditor.
Legacy issues $570,000 of 8.5%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $508,050 when the market rate is 12%.

New York City is issuing $500,000,000 of general obligation bonds paying interest on January 1st and July 1st of each year until maturity. The dated date of the issue is May 1, 2020. The first payment will be made on January 1st, 2021. A bondholder purchases the issue at the offering. How many months of interest will the first and second payments cover?a. One month for the first payment; eight months for the second payment b. Two months for the first payment; six months for the second payment c. Six months for the first payment; six months for the second payment d. Eight months for the first payment; six months for the second payment

Answers

Answer:

The correct option is D, eight months for the first payment; six months for the second payment

Explanation:

From the information provided,it is very clear that interest payment would not made until January 1st 2021,which is 8 months after the date of bond issue.

This means that interest due on July 1st 2020 of two months would be paid together with that which becomes due on 1st January 2021 for six months,hence the first interest payment is for 8 months while the next one would the normal six-month cycle.

As a result,it is convincing enough that option D fits the explanation in all respects.

According to Ghemawat's earlier observations of CAGE phenomena related to countries and relative distances measured with the framework, countries who share a common currency have a greater probablity of trading with each other than countries who share a common border.a. True
b. False

Answers

Answer:

According to Ghemawat's CAGE framework, "countries who share a common currency have a greater probability of trading with each other than countries who share a common border."

a. True

Explanation:

The CAGE framework was developed by an international strategy guru, Pankaj Ghemawat. CAGE is a cultural, administrative, geographic, and economic framework. The framework offers businesses a means to evaluate the non-physical distances that exist between countries. With this more-inclusive view of distance, the CAGE framework provides another way for business to consider the location, opportunities, and risks involved in global trade or arbitrage.

Draft an inquiry letter for purchase of 10 units of IBM P4 computers and 2 units of Lx 300 Epson printers to Kathmandu Computers and Engineering Kathmandu.

Answers

Based on writing standards, the inquiryletter for purchase should begin with the sender's address and be written like a formal letter.

Structures of Letter of Inquiry.

The sender's address should be written at the beginning of the letter, followed by the receiver's address.

The letter must contain all the elements of the enquiring item, including their quantities.

There must be the date and address of the receiver included.

The letter's subject must be written clearly before the letter's content.

Ensure you provide the expected salutation at the beginning of the letter.

Write clearly and straightforward.

Provide reasons and inquiry descriptions.

Add your signature, name, and designation at the end of the letter.

Hence, in this case, it is concluded that there are specific ways to write a good inquiry letter.

Learn more about Inquiry Letter here: brainly.com/question/4208084

A white college receptionist is fired when it is found that she told a black college applicant that the applications for admissions are distinguished by race by the notation of a small RH in the corner of black applicants’ applications. "RH," she says, is her supervisor’s term for "raisin heads," which he calls African-Americans. Is the employee entitled to reinstatement? [Jet magazine article.]

Answers

Probably the employee will be entitled to reintegration into the company. The employee probably lost her job because she exposed the discriminatory employment conditions of blacks in that company. In this case, it is possible for the employee to take legal action for retaliation against her rights, protected by Title VII.

Rice Dazzle Inc. has been making the same breakfast cereal for 50 years. Recently, sales have plummeted. To counteract this, the company created a new package that included an endorsement by a celebrity. As a result, sales increased close to previous highs. However, the cereal itself remained the same. According to the VRIO framework, is the new packaging a valuable resource for Rice Dazzle?

Answers

Answer:

Explanation:

The new packaging did not improve the product itself.

According to the VRIO framework, in order for the packaging to be a valuable resource it has to enable the company to exploit opportunities or defend against threats, it also needs to help organizations to increase the perceived customer value by increasing differentiation or/and decreasing the cost of the product. If the resources do not meet this condition, it can lead to competitive disadvantage.

A startup jewelry company wants to research designs from its potential new jewelry line. It has little money to devote to the research. Which combination of research methods would best suit its situation

Answers

Answer:

Mail and online research.

Explanation:

Since in the given situation, it can be seen that the company does not have much amount to be incurred on the research so the best option is to do online research and mail as the person research and the telephone research becomes expensive as compared to the mail and online research

Therefore the above should be the answer

Other Questions

The skill you’re focusing on this week is:

Examine the experience of shopping online versus shopping in a traditional environment. Imagine that you have decided to purchase a digital camera (or any other item of your choosing). First, shop for the camera in a traditional manner. Describe how you would do so (for example, how you would gather the necessary information you would need to choose a particular item, what stores you would visit, how long it would take, prices, etc.). Next, shop for the item on the Web or via a mobile app. Compare and contrast your experiences. What were the advantages and disadvantages of each? Which did you prefer and why?

Trade-offs must be made among space, labor, and ____ with respect to warehousing design. Group of answer choices Construction materials Speed Mechanization Cost

Olive, the owner of Olive’s Orchard, contracts to sell its harvest to Pure Foods, Inc. Later Olive refuses to perform. Pure Foods files a suit to enforce the contract. Olive and Pure Foods are in a state that does not recognize the doctrine of unconscionability. To defend successfully against enforcement of the contract on similar grounds, Olive might rely on traditional notions of a. materiality. b. mistake. c. value. d. fraud.