Capstone Case


Published on

1 Comment
  • Dear Sir i don't know how to calculate NPV of page 14 .
    and for Residual value 67.199 less tax 34% already. why we need to leas Tax on Residual Value and how to calculate Tax on Residual Value ?
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Capstone Case

  1. 1. PRIMUS AUTOMATION<br />Robert Clark<br />Rey Mendez<br />Nate Wills<br />Katie Young<br />
  2. 2. Primus Automation<br /> Innovative producer of world-class factory-automation products and services with operations in the United States, Europe, and Asia.<br />Products:<br />Programmable controllers<br />Numerical controllers<br />Industrial computers<br />Manufacturing software<br />Factory-automation systems<br />Data communication networks<br />Objectives:<br />Maintain leadership in market share<br />Increase sales by 15% a year<br />Achieve its targets for net income and working capital turnover<br />
  3. 3. Avantjet<br /> Manufacturer of corporate-jet aircraft. Avantjet is trying to acquire an automation system that will cut costs and accelerate the company’s production line. <br /> Some things to note:<br /><ul><li>Capital Intensive
  4. 4. Highly levered
  5. 5. CEO ordered a moratorium on any capital expenditures that will negatively affect the income statement and balance sheet</li></li></ul><li>Financial Situation<br />In order for Avantjet to acquire the automation system they could:<br />Acquire funds through borrowed funds<br />Acquire the equipment through a conditional sale – title passes to the firm upon receipt of the final payment<br />Lease the equipment in two ways:<br />Capital Lease<br />Operating Lease<br />
  6. 6. Lease Characteristics<br /><ul><li>A lease is a rental agreement that involves a series of fixed payments that extend over several periods.
  7. 7. Lessor owns the property that is leased.
  8. 8. Lessee acquires the asset’s productive value from the lessor, but relinquishes the residual value.
  9. 9. Residual Value- what the asset is worth at the end of the lease</li></li></ul><li>Lease Evaluation<br />By the lessee<br />Is leasing the asset less costly than buying it?<br />What company will offer the best leasing terms?<br />By the lessor<br />Will the lease payments provide a satisfactory return on the capital invested in the leased asset? <br />
  10. 10. Capital Lease<br />Spans the entire life of the asset, no cancellation clause<br />Lessee retains ownership of the equipment and is exposed to the risk of early changes in the asset’s value<br />Lessee is required to depreciate the equipment by showing it as an asset and liability on their balance sheet<br />Not able to deduct the lease payment from income taxes<br />
  11. 11. Operating Lease<br />Cancellation clause<br />Technological obsolescence<br />Automation system would not appear on Avantjet’s balance sheet and at the end of the lease term, the equipment would revert back to Primus Automation<br />Not fully amortized<br />Lessee discount<br />Lessor can renew, re-lease, or sell<br />Lease payments are treated as an ordinary expense, deductible from taxable income<br />
  12. 12. Balance Sheet<br />
  13. 13.
  14. 14. Income Statement<br />
  15. 15. Loan Amortization Schedule<br />PMT(Pretax Annual Rate, Term, -715000)<br />
  16. 16. Calculating Operating Lease NPV(Lessee’s Perspective)<br />
  17. 17. Calculating Lease NPV(Lessor’s Perspective)<br />
  18. 18. Calculating Lease IRR<br />
  19. 19. Leasing Options Offered by Primus’ Equipment Finance Division<br />
  20. 20. NPV for PrimusOptions 1 & 2<br />
  21. 21. NPV for Primus Options 3 & 4<br />
  22. 22. Summary<br />
  23. 23. Summary<br />
  24. 24. AvantJet’s Net Advantage of Leasing over Borrowing<br /> Option 1<br /> Option 2<br />
  25. 25. AvantJet’s Net Advantage of Leasing over Borrowing<br /> Option 3<br /> Option 4<br />
  26. 26. Primus Vs.FaulhaberGmbh<br /> Option 3<br /> Option 4<br />
  27. 27. Primus Vs.Honshu Heavy Industries<br /> Option 3<br /> Option 4<br />
  28. 28. Decision Summary<br />Pick Option 3<br />Operating lease<br />Option 1 and 2 do not give Primus a positive NPV<br />Option 3 and 4 give Primus a positive NPV <br />However, with option 4 there would not be a net advantage to leasing between Primus and Honshu Heavy Industries, so we would risk potentially losing this business. <br />