10.1 [80] 

Now we revisit Problem 8.1, the one about Eggplant Technologies, Inc., but this time, instead of buying the equipment, you'll acquire it under a capital lease agreement, with a three-year term and an annual interest rate of 12%. Payments are made at the end of each quarter. The equipment is depreciated uniformly over a period of three years. Computers for Sales Representatives and Engineers have different prices, as shown in the table below (the same as Problem 8.1). In this problem you can use the Convolve macro, if you like.

	Cost (k$)
Sales Representatives	1.5
Engineer	4.7

The hiring stream you're supporting is shown in the table below, which is also the same as Problem 8.1:

	Y1Q1	Y1Q2	Y1Q3	Y1Q4	Y2Q1	Y2Q2	Y2Q3	Y2Q4	Y3Q1	Y3Q2	Y3Q3	Y3Q4
Sales Rep	2	3	4	4	2	2	3	5	2	4	1	1
Engineer	0	0	1	1	2	0	1	1	2	0	2	1

(a) [10] 

Create ranges on your worksheet that hold the data HireStreamAnalysis and EqptCostAnalysis, corresponding respectively to the tables above. Show EqptCostAnalysis in thousands. Then, in a 1x12 range, compute the depreciation stream, which gives the fractional depreciation for each quarter.

(b) [20] 

Compute the total cost of equipment required in each quarter to support the hiring streams.

(c) [30] 

Compute the Lease Characteristic Array for this problem. Use the same ordering for the rows as we used in demonstrations for Session 10, and create the LCA for a $1000 item.

(d) [20] 

For each quarter, compute:

• the cash required
• the cumulative net increase in assets in each quarter resulting from these purchases, after accounting for depreciation
• the cumulative net increase in liabilities
• the depreciation expense
• the interest expense

Present the rows of your answer in the order given above.

10.2 [20] 

In this problem, you'll extend the LCA concept to include the effects of insurance and maintenance costs. Since both of these elements can be expected to vary over the life of the lease, the LCA extended in this way can account for some fairly complex modeling issues.

(a) [10] 

Assume that the charges for insurance in any given quarter are 4.0% of the then-remaining undepreciated value of the equipment, and that a maintenance contract for a specific piece of equipment costs 15% of the original equipment cost per quarter. Original equipment cost is the cost of the equipment itself if it were not leased. All other parameters descibing the lease itself are the same as Problem 10.1.

Define a parameter called InsuranceRatePQ, which holds the percentage rate for the insurance costs, on a quarterly basis. Define a parameter called MaintenanceRatePQ, which holds the percentage rate for maintenance costs, on a quarterly basis. Construct an extended LCA that consists of not only the LCA for Problem 10.1 but also the quarterly effects of insurance and maintenance contracts. Thus, your new LCA should have two additional lines, one for insurance, and one for maintenance. Compute only the LCA. Do not convolve it with anything.

(b) [10] 

Some costs depend not on the monetary value of equipment leased, but on the number of items leased. For example, in computing the cost of labor for software maintenance for computers, although there is some dependence on the cost of the computer, there is a much stronger dependence of costs on the number of computers. The LCA approach does not work well for these kinds of costs. Why not? Enter your explanation directly into the spreadsheet in which you solved (a).