Cu Boxes: Capital Expenditure

Paper Summary:

This paper indicates that the NPV (net present value) analysis shows a net loss fo Cu Boxes on the lease option over the operational life of the equipment because it would lose the tax benefits related to depreciation. The paper then explains, however, that the initial capital requirement to purchase capital equipment is a major concern for Cu Boxes. The paper also points out that Cu Boxes intends to borrow money to partially cover the purchase, which will make it a higher credit risk and will limit its lines of credit and loan options. The paper relates that, in Cu Boxes' automation dependent industry, the pace of obsolescence makes the purchase more problematic. The paper includes analysis charts.

Table of Contents:
Issue Overview
Capital Equipment Lease or Purchase
Machine Purchase
Conclusion

From the Paper:

"Buying equipment can often be the best decision because of the equity position that a company receives in the equipment which, depending on the industry, could be substantial. This implies that the strongest advantages in purchasing capital equipment are the outright ownership and the extended tax benefits but for companies with cash flow concerns, the initial investment costs are or can be prohibitive ("Capital"). "

Sample of Sources Used:

• "Capital Budgeting Needs Vision: Business Line." Islamabad, Jul.1(2003).
• Lefley, Frank. "Modified Internal Rate of Return: Will it Replace IRR?" Management Accounting, 75/1(1997): 64.
• "The Top Ten Things to Consider When Making a Capital Budgeting or Investment Decision." TopTen.org (online) May 24, 2007< http://www.topten.org/>.

More papers on Cu Boxes: Capital Expenditure:

• Case Study # 8194 : "Capital Structure and Budgeting"
• Case Study # 105762 : "Capital Budgeting: Theory Versus Process"
• Analytical Essay # 71238 : "Little Girls in Pretty Boxes"

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