Reference no: EM13988516

Digital Frames Linda Pfeltz is a videographer and owner of digital Frames, a company in Hickory, North Carolina, that records and edits videos for usiness, families, weddings, and special events. Linda wants to upgrade the company's computer system and is evaluating whether to buy new equipment or to lease it. She has asked you to complete and Excel workbook that compares the costs of owning versus leasing. Complete the following:

1. Linda can upgrade the computer system by purchasing equipment for $ 18,000. She would also want to buy a 36-month service contract at the time of the purchase for $540. Linda anticipates that she would be able to sell the system for $12,000 after three years, when it will be time for her next upgrade. Enter these values in the Buy vs. Lease worksheet in the range B4:B6.

2. Under the lease option, Linda, Linda will be able to lease equipment for $ 325 per month for the next 36 months. She will also have to pay a $ 1000 security deposit at the time of the purchase. She won't need to buy a service contract because the company provides service on the computers it leases. Enter these values in the Buy vs Lease worksheet under the lease Conditions section in cells B9 and B10

3. In the range E2:F2, enter the initial investment for each option, that Linda will have to initially pay for the computer system and the service deposit. Under the lease option, Linda will have to initially pay for the security contract.( hint: enter these initial expenditures as negative cash flows.)

4. In the range E3:E38, for Month 1 through Month 36 enter 0to indicate that Linda will not make monthly payments once she has bought the computer equipment.

5. In the range F3:F38 enter the amount linda would have to spend under the Lease  Option each month as negative cash flow.

6. In the range E39:F39, enter formulas that reference the revenue linda will earn from selling the computer system under the Buy option, and the revenue she will receive under the lease option when her security deposit is returned. These values should be entered as positive cash flows.

7.  In cell B12, enter an annual discount rate of 9.6%. In cell B14, enter a formula to calculate the monthly discount rate.

8. In cell B15, enter a formula to calculate the net present value of buying the computer system by adding the initial investment in cell E2 to the present value of the cash flows in the range E#:E39. Use the NPV function with the monthly discount rate in cell B14 as the rate of return to calculate the ultimate cost of the computer system if Linda buys it.

9. In cell B16, enter a formula to calculate the net present value of leasing by adding the initial investment from cell F2 to the present value of the cash flows in the range F#:F39. Again use , cell B14 as the rate of return and calculate the ultimate cost to lease the computer equipment.

10. Save the text book as Digital Frames.

11. Use the Goal Seek to determine the monthly payment from leasing that will cause the net present value of leasing to exactly match the net present value of buying. (hint: You must explicitly enter the net present value of the buy option in the Goal Seek dialog box.)

12. Save the workbook as Digital Frames 2

13. Return the monthly payment under leasing to its original value of $ 325.

14. Linda might not be able to sell the computer system for $ 12,000. Use the Goal Seek to determine the resale value for the computer system after 36 month that will cause the net present value of buying exactly math the net present value of leasing.

15.  Save the workbook as digital Frames 3, and then close it

Attachment:- Linda Pfeltz.xlsx