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Riverbend Telephone Company - Case Study Example

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The acquisition of assets of the business is one of the areas that requires a keen analysis, mainly to determine if it would be beneficial for the company…
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Riverbend Telephone Company case
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Riverbend Telephone Company case Learner’s Affiliated Institute Introduction The aim of any business venture is to generate as much profits as possible, by keeping its expenses at the minimum levels. The acquisition of assets of the business is one of the areas that requires a keen analysis, mainly to determine if it would be beneficial for the company to lease or purchase an asset. In his book on asset analysis, (Director, n.d.)1 Explained that, some scenarios arise in business, when the lease option is beneficial than purchasing the asset. In this document, a case analysis is done at the Riverbend Telephone Company, to determine if it would be beneficial to lease or buy a track.
Qn. 1: Should the company hire or buy the truck?
To determine the better decision between the two options, an analysis of the expenses to be suffered by the firm over the five years must be done. The tables shown below shows the analysis of the estimated expenses for the two options over the five years.
THE PURCHASING OPTION
Buying cost
$24300
Maintenance Cost
yr1
y2
y3
y4
y5
Gasoline
$3600
$3600
$3600
$3600
$3600
Repairs & Maintenance
800
928
1048
1160
1264
Insurance
2400
2400
2400
2400
2400
Tires
0
760
760
760
2760
Registration/ Taxes
848
720
600
488
384
Depreciation
4860
4860
4860
4860
4860
Maintenance Expenses
$12508
$13268
$13268
$13268
$13268
Grand Expenses
$89,880
Discussion
From the two tables, the projected expenditures for each of the options is shown. If the company chose to hire the truck, it would approximately spend $98,540 to cater for the lease charges as well as the maintenance costs. By choosing to purchase the vehicle, the firm would be required to spend $89,880 on its purchase and maintenance. Additionally, if the company bought the truck, the estimated worth of the truck after five years would be $1,800. This would cut on the expenses value to ($89880 - $1800), reducing the expenses value to $88,080.
Conclusion
From the analysis, the purchase option saves the company up to $10,460. In business, this amount is huge enough for the company to avoid losing, and for this reason, the better option for the firm is to purchase to truck, as opposed to hiring. This is simply because the purchase option is $10,460 cheaper than hiring the truck for five years.
Qn. 2:
Depreciation Schedule
Cost: $24,300.00, Salvage: $1,800.00, Life: 5 years, Factor: 2
Convention: Full-Month, First Year: 12 months
Depreciation Schedule Table
Year
 
Book Value
Year Start
Depreciation
Percent
Depreciation
Expense
Accumulated
Depreciation
Book Value
Year End
2004
$24,300
40.00%
$9,720
$9,720
$14,580
2005
$14,580
40.00%
$5,832
$15,552
$8,748
2006
$8,748
40.00%
$3,499
$19,051
$5,249
2007
$5,249
40.00%
$2,100
$21,151
$3,149
2008
$3,149
40.00%
$1,260
$22,410
$1,890
Discussion
From the schedule table, the expected accumulated depreciation after five years will be $22,410. This would reduce the depreciation costs as computed using the straight-line method, by $1,890. Since the difference margin from the initial comparison was over $10,000, the $1,890 cannot be huge enough to change the decision on the purchase of the truck. The firm should buy the vehicle, even when based on this method of depreciation.
Qn. 3: Reporting to the Commission
Mr. Freeman should consider all the expenses, including the annual lease charges. For instance, in the first annual report, he should report that the expenses are $39,416. This includes the maintenance costs and the lease charges.
Work Cited
Steven M Director, Financial analysis for HR managers, n.d. Read More
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