Investment Analysis 51
- Key in the annual interest rate and press ¼.
- Key in the loan amount (purchase price) and press Þ$.
- Press P to find the annual payment.
4.
Key in the marginal effective tax rate
*
and press ?3.
5.
RPN: Key in the discount rate or cost of capital
*
and press \1+?4.
5.
ALG: Key in the discount rate or cost of capital
*
and press +1³?4.
6.
Key in the depreciable value and press ?5.
7.
Key in the depreciable life and press ?6.
8. For declining balance depreciation, key in the depreciation factor (as a percentage)
and press ?7.
9. RPN: Key in the total first lease payment (including any advance payments) and
press \1:3-§?2.
9. ALG: Key in the total first lease payment (including any advance payments) and
press ³1-:3§~³?2.
10. Key in the first year's maintenance expense that would be anticipated if the asset was
owned and press \(³) . If the lease contract does not include maintenance, then
it is not a factor in the lease vs. purchase decision and 0 expense should be used.
11.
Key in the next lease payment and press t. During any year in which a lease
payment does not occur (e.g. the last several payments of an advance payment
contract) use 0 for the payment.
12. Repeat steps 10 and 11 for all maintenance expenses and lease payments over the
term of the analysis.
Optional - If the investment tax credit is taken, key in the amount of the credit after
finishing steps 10 and 11 for the year in which the credit is taken and press
g(043 (ALG:036) t . Continue steps 10 and 11 for the remainder of the
term.
13. RPN: After all the lease payments and expenses have been entered (steps 10 and 11),
key in the lease buy back option and press \1:3-§g(043t. If no
buy back option exists, use the estimated salvage value of the purchased equipment at
the end of the term.
13. ALG: After all the lease payments and expenses have been entered (steps 10 and 11),
key in the lease buy back option and press ³1-
:3§~³g(036t. If no buy back option exists, use the estimated
salvage value of the purchased equipment at the end of the term.
14.
To find the net advantage of owning press :2. A negative value represents a net
lease advantage.
Example: Home Style Bagel Company is evaluating the acquisition of a mixer which can
be leased for $1700 a year with the first and last payments in advance and a $750 buy
back option at the end of 10 years (maintenance is included).
The same equipment could be purchased for $10,000 with a 12% loan amortized over 10
years. Ownership maintenance is estimated to be 2% of the purchase price per year for the
first for years. A major overhaul is predicted for the 5th year at a cost of $1500.
Subsequent yearly maintenance of 3% is estimated for the remainder of the 10 year term.
The company would use sum of the years digits depreciation on a 10 year life with $1500
*
Key in as a decimal (e.g., 5% as .05).
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Weight and Dimensions
