Essay Grade

Chapter Contents
Chapter Review
Mini Case
Lewis Securities Inc. has decided to acquire a new market data
and quotation system for its Richmond home office. The system
receives current market prices and other information from
several online data services and then either displays the
information on a screen or stores it for later retrieval by the
firm’s brokers. The system also permits customers to call up
current quotes on terminals in the lobby.
The equipment costs $1,000,000 and, if it were purchased,
Lewis could obtain a term loan for the full purchase price at a
10% interest rate. Although the equipment has a 6-year useful
life, it is classified as a special-purpose computer and therefore
falls into the MACRS 3-year class. If the system were purchased,
a 4-year maintenance contract could be obtained at a cost of
$20,000 per year, payable at the beginning of each year. The
equipment would be sold after 4 years, and the best estimate of
its residual value is $200,000. However, because real-time
display system technology is changing rapidly, the actual
residual value is uncertain.
As an alternative to the borrow-and-buy plan, the equipment
manufacturer informed Lewis that Consolidated Leasing would
be willing to write a 4-year guideline lease on the equipment,
including maintenance, for payments of $260,000 at the
beginning of each year. Lewis’s marginal federal-plus-state tax
rate is 40%. You have been asked to analyze the lease-versuspurchase decision and, in the process, to answer the following
questions:
a
1. Who are the two parties to a lease transaction?
2. What are the five primary types of leases, and what are their
characteristics?
3. How are leases classified for tax purposes?
4. What effect does leasing have on a firm’s balance sheet?
5. What effect does leasing have on a firm’s capital structure?
B
1.What is the present value of owning the equipment? (Hint: Set
up a time line that shows the net cash flows over the period to ,
and then find the PV of these net cash flows, or the PV cost of
owning.)
2. Explain the rationale for the discount rate you used to find the PV.
C. What is Lewis’s present value of leasing the
equipment? (Hint: Again, construct a time line.)
D,What is the net advantage to leasing (NAL)? Does your
analysis indicate that Lewis should buy or lease the equipment?
Explain.
E, Now assume that the equipment’s residual
value could be as low as $0 or as high as
$400,000, but $200,000 is the expected value.
Because the residual value is riskier than the
other relevant cash flows, this differential risk
should be incorporated into the analysis.
Describe how this could be accomplished. (No
calculations are necessary, but explain how you
would modify the analysis if calculations were
required.) What effect would the residual
value’s increased uncertainty have on Lewis’
lease-versus-purchase decision?
F. The lessee compares the present value of owning the
equipment with the present value of leasing it. Now put
yourself in the lessor’s shoes. In a few sentences, how should
you analyze the decision to write or not to write the lease?
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Assignment Private Ownership and Markets
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Due Date: Jun 28, 2017 23:59:59
Max Points: 120
Details:
Read the case study on page 27 “Protecting Endangered Species with Private Property Rights.” Write an
essay 1,000-1,250 words, answering the following questions:
1.
2.
Economists argue that scarcity is different than poverty. To understand why many wild animals
are scarce we need to look at scarcity in the context of private property. Explain how scarcity is
affected by private property rights in the case study.
Compare and contrast how incentives accompanying private property rights can both help protect
and endanger the rhino, an endangered species.
Be sure to cite at least three relevant scholarly sources in support of your content. These sources can
include trade journals and think tank reports. Use only sources found at the GCU Library or those provided
in Topic Materials.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become
familiar with the expectations for successful completion.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student
Success Center.
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Private Ownership and Markets
2
1
3
Less than
Unsatisfactory
Satisfactory
Satisfactory
0.00%
79.00%
74.00%
70.0 %Content
25.0 % Read Essay does not Essay
the case study explain how somewhat
on page 27,
scarcity is
explains how
Protecting
affected by
scarcity is
Endangered private
affected by
Species with property rights private
Essay
explains how
scarcity is
affected by
private
property
4
Good
87.00%
5
Excellent
100.00%
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how scarcity is how scarcity is
affected by
affected by
private
private
property rights property rights
in the case
in the case
Private
in the case
Property
study.
Rights. Write
an essay 1,0001,250 words,
answering the
following
questions, 1.
Economists
argue that
scarcity is
different than
poverty. To
understand
why many wild
animals are
scarce we need
to look at
scarcity in the
context of
private
property.
Explain how
scarcity is
affected by
private
property rights
in the case
study.
property rights rights in the study with
in the case
case study
accurate
study. The
with some
details and
topic is
level of depth; evidence;
skimmed over explanation is explanation
and is lacking limited and provides
depth of any lacks some analysis with
kind.
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to support
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claims.
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Essay
compares and
compares and
Essay
contrasts how
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somewhat
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contrasts how
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35.0 % 2.
Essay does not accompanying
can both help
rights can
private
Compare and compare and private
protect and
both help
property rights
contrast how contrast how property rights
endanger the
protect and can both help
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10.0 % Utilize
the GCU
Library to
locate at least No outside
three relevant, sources are
scholarly
cited.
sources in
support of the
content.
At least three
relevant,
At least three At least three
scholarly
Some sources relevant,
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sources are
may be cited scholarly
scholarly
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but they are sources are sources are
flawlessly
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and/or
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the essay to
relevant.
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that clearly
support the
vague way. support claims.
claims made
therein.
20.0
%Organization
and
Effectiveness
There is a
Paragraphs and
A logical
sophisticated
transitions
Some
progression of construction of
consistently
paragraphs and Paragraphs ideas between paragraphs
lack unity and
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are generally paragraphs is and
coherence. No
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10.0 %
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connections
Paragraph
progression of show some exhibit a unity, and relate to
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10.0 %
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10.0 %Format
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5.0 % Paper
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Format (Use of
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5.0 %
Research
Citations (Intext citations
for
paraphrasing
and direct
quotes, and
reference page
listing and
formatting, as
appropriate to
assignment)
No reference
page is
included. No
citations are
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present.
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Chapter Contents
Chapter Review
Mini Case Chap 19
Lewis Securities Inc. has decided to acquire a new market data
and quotation system for its Richmond home office. The system
receives current market prices and other information from
several online data services and then either displays the
information on a screen or stores it for later retrieval by the
firm’s brokers. The system also permits customers to call up
current quotes on terminals in the lobby.
The equipment costs $1,000,000 and, if it were purchased,
Lewis could obtain a term loan for the full purchase price at a
10% interest rate. Although the equipment has a 6-year useful
life, it is classified as a special-purpose computer and therefore
falls into the MACRS 3-year class. If the system were purchased,
a 4-year maintenance contract could be obtained at a cost of
$20,000 per year, payable at the beginning of each year. The
equipment would be sold after 4 years, and the best estimate of
its residual value is $200,000. However, because real-time
display system technology is changing rapidly, the actual
residual value is uncertain.
As an alternative to the borrow-and-buy plan, the equipment
manufacturer informed Lewis that Consolidated Leasing would
be willing to write a 4-year guideline lease on the equipment,
including maintenance, for payments of $260,000 at the
beginning of each year. Lewis’s marginal federal-plus-state tax
rate is 40%. You have been asked to analyze the lease-versuspurchase decision and, in the process, to answer the following
questions:
a
1. Who are the two parties to a lease transaction?
2. What are the five primary types of leases, and what are their
characteristics?
3. How are leases classified for tax purposes?
4. What effect does leasing have on a firm’s balance sheet?
5. What effect does leasing have on a firm’s capital structure?
B- 1.What is the present value of owning the equipment?
(Hint: Set up a time line that shows the net cash flows over the
period to , and then find the PV of these net cash flows, or the PV
cost of owning.)
2.Explain the rationale for the discount rate you used to
find the PV.
C. What is Lewis’s present value of leasing the equipment?
(Hint: Again, construct a time line.)
D. What is the net advantage to leasing (NAL)? Does your
analysis indicate that Lewis should buy or lease the
equipment? Explain.
E. Now assume that the equipment’s residual value could be as
low as $0 or as high as $400,000, but $200,000 is the
expected value. Because the residual value is riskier than the
other relevant cash flows, this differential risk should be
incorporated into the analysis. Describe how this could be
accomplished. (No calculations are necessary, but explain
how you would modify the analysis if calculations were
required.) What effect would the residual value’s increased
uncertainty have on Lewis’ lease-versus-purchase decision?
F. The lessee compares the present value of owning the
equipment with the present value of leasing it. Now put
yourself in the lessor’s shoes. In a few sentences, how should
you analyze the decision to write or not to write the lease?

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