Agro-Chem Case Analysis

Group 2: Michael Argyrou, Patrick Bross, Daniel Mills, David Lloyd, Robert Curl
Finance 312-010
Professor Detwiler
whitethorn 1st 2009
Agro-Chem, Inc.
Problem Statement:
Agro-Chem. Inc has hired our consultant sort to help make a big lease versus leveraging decision for their company. If we ar to simply analyze the information and data they are stupefying to us thus far, our conclusion may be met more easily. However, a few riddles call for been brought to our attention after(prenominal) reviewing the case, and it is our job to extend our analysis to prepare a richly thought out recommendation for Agro-Chem. Inc.
For our situation Agro-Chem. decided to use of goods and services a 14% discount rate to determine the present pry costs of leasing and of purchasing. However, this number was not necessarily hold upon. A 12% discount rate was also proposed by the companys assistant treasurer. The companys certified public accountant firm also reviewed the situation and in result, t present was come along disagreement. Although Agro-Chem. decided to use this rate, was this the right choice for the company? This is actually important to consider. Another problem that is revealed is that the salvage value at the end of the fourth year is relatively uncertain. The equipments correspondence value could be as a low as $0 and as high as $510,000.



The probabilities of these extreme values are 0.25 which is not as small as you would think. This information here leaves a lot of chance in the situation. Another problem to point out is held with Lonestar. A few of their executives believe that the residual value in this case will be often higher than expected due to the expanding nature of Agro-Chem. Inc. This brings up a larger problem that cannot be ignored. It seems as if it is only an guess that Agro-Chem. will be moving and expanding after four years. When on that point are big investments on the table it is a catch risky to assume. Whether or not the company moves will have a clear effect on this lease versus grease ones palms decision. There are clearly a few...If you want to regain a full essay, order it on our website: Orderessay



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