With the big boom of the telecommunications industry within recent years, many telecom companies are looking for ways to expand their base and grab that incremental part of market share. The advancement of technology causes a greater consumer demand to fulfill the voids of older, less effective communication methods. Technology and growth are the means by which the telecom industry has been able to boom. Riverbend Telephone Company is one of those telecom organizations that is looking to broaden their market share in the telecom industry. Riverbend Telephone Company is an independently owned telecom organization. It’s current market base is local but the challenge is to broaden its geographic coverage area. Customers in this local,
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2) If the truck is leased, how should Mr. Freeman report investment and annual income for the Riverbend Telephone Company to the State Public Service Commission?
In reporting its rate of return on assets, since the present value of the lease payments is greater than 90% of the fair market value ($27,293 vs $24,300 FMV) as shown earlier, it would be considered a capital lease and the asset would go on the balance sheet. There are no earnings over asset ratio advantages to leasing as the net assets or denominator is the same in both cases. The value of the truck should be included in the firm's net assets. Their income is affected by the $7,200 a year being an expense and subtracted from their revenues thus decreasing their income. However, as stated earlier, there are tax savings associated with leasing since the expense is subtracted from the income to be taxed.
In conclusion, the obvious choice as depicted in all the analysis that we did for the case study shows that Riverbend should purchase the vehicle as oppose to leasing the