It is January 1, 2018. You are a Senior Analyst at Canada Hardware Inc. (CHI), one of the top hardware, sports, and apparel providers in Canada with hundreds of stores across Canada. The CEO of Canada Hardware, Tony Stark, has reached out to you to look at two options regarding an investment, building on your analysis from Assignment 1 and Assignment 2.
Under this case approach, you will demonstrate your ability to undertake a detailed analysis to evaluate the buy versus lease options for an investment proposal, on a qualitative and quantitative basis. You will also be required to calculate the weighted average cost of capital (WACC). A supplementary scenario analysis of leasing options is required.
How to Proceed
1. Create a title page with your purchase versus lease report name and author identification.
2. Explain the advantages and disadvantages of leasing, including the possible reasons, right or wrong, that would make a company lease an asset (from the lessor and lessee perspective)
3. Calculate the weighted average cost of capital (WACC) to use in your net advantage to leasing (NAL) analysis, rounding to the nearest one tenth of a percent.
4. Prepare your Net Advantage to Leasing analysis of the investment using the WACC as the discount rate. In addition, determine the impacts of the sensitivity analysis in the case, including
a. changes in payments from beginning of period to end;
b. changes in salvage value;
c. security deposit; and
d. the break-even lease payment.
5. Explain and evaluate if the investment should be purchased or leased, depending on the different scenarios analyzed.
6. Determine the classification of the lease option being considered, and indicate what the effect would be on the statement of financial position.