Riverbend Telephone Company - Case Study Example

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 OPTIONBuying cost$24300Maintenance Costyr1y2y3y4y5Gasoline $3600$3600$3600$3600$3600Repairs & Maintenance 800928104811601264Insurance24002400240024002400Tires07607607602760Registration/ Taxes848720600488384Depreciation 48604860486048604860Maintenance Expenses$12508$13268$13268$13268$13268Grand Expenses $89,880Discussion 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 ScheduleCost: $24,300.00, Salvage: $1,800.00, Life: 5 years, Factor: 2Convention: Full-Month, First Year: 12 monthsDepreciation Schedule TableYear Book ValueYear StartDepreciationPercentDepreciationExpenseAccumulatedDepreciationBook ValueYear End2004$24,30040.

00%$9,720$9,720$14,5802005$14,58040.00%$5,832$15,552$8,7482006$8,74840.00%$3,499$19,051$5,2492007$5,24940.00%$2,100$21,151$3,1492008$3,14940.00%$1,260$22,410$1,890Discussion 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 CitedSteven M Director, Financial analysis for HR managers, n.d.