The company is looking at 3 options and they want you to make the financial eval
ID: 2640639 • Letter: T
Question
The company is looking at 3 options and they want you to make the financial evaluation because you just got out of school and can do this. Important notes, the company has a marginal tax rate of 30% and can borrow money at 10% interest for the foreseeable future. Because of the rapid change, the company has a planning horizon of 10 years (study period) to evaluate the project.
You want to make a good impression on your new company and want to consider everything. What should you recommend?
The company has 3 choices:
Option 1: Keep the current fully furnished office space arrangement they have and expand to new space and lease for 10 years with a 5% price increase every year.
Option 2: Rent a new space for 10 years, but provide/buy all the furniture and computers and other lease hold improvements. Having this new space may increase sales some.
Option 3: Build a new corporate head quarters, you know this will be expensive, but think the brand image impact will increase sales and profitability
Item
Option 1
Option 2
Option 3
Option 1 - Annual Cost to rent
$120,000
Option 1 - Annual rent increase (Start Year 2)
5.00%
Option 2 - Annual cost to rent unfurnished
$65,000
Options 2 - Annual Rent Increase
3%
Option 2 - Lease Hold Improvements - MACRS GDS Life - 10 Year
$120,000
Option 2 - Furniture and Fixtures - MACRS GDS Life - 7 Years
$180,000
Option 2 - Profit boost from new Location Image (Annual)
$25,000
Option 3 - Cost of Land (Not Depreciable)
$200,000
Option 3 - Cost of Building ( Assume MACRS 20 Year Life)
$800,000
Option 3 - Cost of Furniture and Fixtures - MACRS GDS Life 7 years
$100,000
Option 3 - Value of Building to Sell at Year 10
$500,000
Option 3 - Profit boost from new Location Brand Image (Annual)
M
Small Tools, Tractors
Computers, Light Auto, Constr Equip
Office Furniture & Fixtures, Machinery
Specialized Heavy Eq, Machinery
MACRS
YEAR
3 YEAR
5 YEAR
7 YEAR
10 YEAR
20 YEAR
1
33.3%
20.0%
14.3%
10.0%
3.750%
2
44.5%
32.0%
24.5%
18.0%
7.219%
3
14.8%
19.2%
17.5%
14.4%
6.677%
4
7.4%
11.5%
12.5%
11.5%
6.177%
5
11.5%
8.9%
9.2%
5.713%
6
5.8%
8.9%
7.4%
5.285%
7
8.9%
6.6%
4.888%
8
4.5%
6.6%
4.522%
9
6.5%
4.462%
10
6.5%
4.461%
11
3.3%
4.462%
12
4.461%
13
4.462%
14
4.461%
15
4.462%
16
4.461%
17
4.462%
18
4.461%
19
4.462%
20
4.461%
21
2.231%
$85,000
Item
Option 1
Option 2
Option 3
Option 1 - Annual Cost to rent
$120,000
Option 1 - Annual rent increase (Start Year 2)
5.00%
Option 2 - Annual cost to rent unfurnished
$65,000
Options 2 - Annual Rent Increase
3%
Option 2 - Lease Hold Improvements - MACRS GDS Life - 10 Year
$120,000
Option 2 - Furniture and Fixtures - MACRS GDS Life - 7 Years
$180,000
Option 2 - Profit boost from new Location Image (Annual)
$25,000
Option 3 - Cost of Land (Not Depreciable)
$200,000
Option 3 - Cost of Building ( Assume MACRS 20 Year Life)
$800,000
Option 3 - Cost of Furniture and Fixtures - MACRS GDS Life 7 years
$100,000
Option 3 - Value of Building to Sell at Year 10
$500,000
Option 3 - Profit boost from new Location Brand Image (Annual)
M
Small Tools, Tractors
Computers, Light Auto, Constr Equip
Office Furniture & Fixtures, Machinery
Specialized Heavy Eq, Machinery
MACRS
YEAR
3 YEAR
5 YEAR
7 YEAR
10 YEAR
20 YEAR
1
33.3%
20.0%
14.3%
10.0%
3.750%
2
44.5%
32.0%
24.5%
18.0%
7.219%
3
14.8%
19.2%
17.5%
14.4%
6.677%
4
7.4%
11.5%
12.5%
11.5%
6.177%
5
11.5%
8.9%
9.2%
5.713%
6
5.8%
8.9%
7.4%
5.285%
7
8.9%
6.6%
4.888%
8
4.5%
6.6%
4.522%
9
6.5%
4.462%
10
6.5%
4.461%
11
3.3%
4.462%
12
4.461%
13
4.462%
14
4.461%
15
4.462%
16
4.461%
17
4.462%
18
4.461%
19
4.462%
20
4.461%
21
2.231%
$85,000
Explanation / Answer
some one please answer for the love of god