Corporate Finance

BCO315 Corporate Finance Group B – Fall 2020 – Final Assignment – by Miguel Corte-Real
Task: Final Assignment (50% of course grade)
You are asked to answer all the questions in the proposed four cases.
This task assesses the following learning outcomes:
• Discuss and analyze the benefits of leasing versus ownership of assets.
• Analyse the concepts underlying the firm’s cost of capital.
• Demonstrate a deep understanding of the theory and practices of mergers and acquisitions
(M&A).
• Critically evaluate financial distress.
LAUNCH: WEEK 7 / DELIVERY: WEEK 13 Sunday, January 17th, 2021, 23:59hrs ON MOODLE Submission file format: Word document with all the answers, clearly identifying each case separately.

CASE 1 (20 points)

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You work for Cigna hospitals that are contemplating leasing a diagnostic scanner (leasing is very common practice with expensive, high-tech equipment). The scanner costs €4,800,000, and it would be depreciated straight-line to zero over four years. Because of the short cycle of the technological equipment, the scanner will be completely valueless in four years. You can lease it for €1,430,000 per year for four years at a borrowing interest rate of 8% – ignore taxes for the purpose of this exercise.

Instructions:

a. Create a lease-versus-buy analysis. Calculate the NPV of leasing. Should you lease or buy?  (10 points)

b. What are the differences between an operating lease and a financial lease? (10 points) For more information on Corporate Finance check on this: https://en.wikipedia.org/wiki/Corporate_finance
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