2. Primus Automation Innovative producer of world-class factory-automation products and services with operations in the United States, Europe, and Asia. Products: Programmable controllers Numerical controllers Industrial computers Manufacturing software Factory-automation systems Data communication networks Objectives: Maintain leadership in market share Increase sales by 15% a year Achieve its targets for net income and working capital turnover
8. Lessee acquires the asset’s productive value from the lessor, but relinquishes the residual value.
9.
10. Capital Lease Spans the entire life of the asset, no cancellation clause Lessee retains ownership of the equipment and is exposed to the risk of early changes in the asset’s value Lessee is required to depreciate the equipment by showing it as an asset and liability on their balance sheet Not able to deduct the lease payment from income taxes
11. Operating Lease Cancellation clause Technological obsolescence Automation system would not appear on Avantjet’s balance sheet and at the end of the lease term, the equipment would revert back to Primus Automation Not fully amortized Lessee discount Lessor can renew, re-lease, or sell Lease payments are treated as an ordinary expense, deductible from taxable income
28. Decision Summary Pick Option 3 Operating lease Option 1 and 2 do not give Primus a positive NPV Option 3 and 4 give Primus a positive NPV However, with option 4 there would not be a net advantage to leasing between Primus and Honshu Heavy Industries, so we would risk potentially losing this business.
