a. Calculate the cost of purchasing the equipment
b. Calculate the cost of leasing the equipment.
c. Calculate the net advantage to leasing. Should the company purchase or lease the equipment?
Question 7. (15 points) Marcal Corporation is considering a gold mining project would cost $15 million today and generate positive cash flows of $6 million a year at the end of each of the next 4 years. The project’s cost of capital is 12%.
a. Calculate the project’s NPV if the company proceeds now.
b. The company is fairly confident about its cash flow forecast, but expects to have better price information in 1 year. The company believes the cost would be $18 million in 1 year. It estimates there is a 60% change CFs will be $9 million for 4 years and a 40% change CFs will be $5 million for 4 years. Should the company proceed with the project now or wait 1 year until it has better information?
c. Apart from the calculations above, discuss 3 qualitative factors that the company should consider when making its decision on accepting the new project.