Monday, February 10, 2020

Real estate and capital structure decisions- Lease versus Buy Analysis Essay

Real estate and capital structure decisions- Lease versus Buy Analysis - Essay Example If the study proves to be promising, that the company will most likely to expand in 2-3 years, the idea of buying a space could then be possible---but it still might not be the best option. Company expansion may not even mean an extension of the same space. It would sometimes be practical, and this is what most businessmen prefer, to rent a space from a different area. This aims to win a different market and could then maximize company profits, or at times, if it is not a marketing company, this option will give its clients an option on which office is more accessible. Another factor is the present company financial status on the STL’s immediate needs. Having a twenty full-time staff, STL could then be considered as a small enterprise, and its financial statements show that STL is not earning a quite impressive profit; in fact, the statement indicates that the company will be immediately affected of the lease rent increase. Below is an illustration of a basic computation to determine the distinction on the lease expense and the purchase option. The trading company is currently paying an annual amount of HK$970,000 or HK$80,833.333 every month, whereas, an additional ten percent would require the company to spend HK$1,067,000 every year or HK$88916.667 each month. This amount, when multiplied by 10, would make the company an allotment of HK$10, 670,000. Please note the possibility of another increase for the lease. This would be dependent on the length of time of the contract, if STL has a 10-year lease contract it is not likely to endure another price rise. The amount, however, was multiplied by ten, for the anticipation of a ten- year-mortgage should the company decide to purchase its own space. The interest would depend on the market and economy; however, it is evident that the purchase price does not have a great difference in amount. The purchase

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