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  3. (b) eir-tel, inc. is a telecommunication services

(b) Eir-Tel, Inc. is a telecommunication services provider looking to expand to a new territory Z....

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Operations Management

(b) Eir-Tel, Inc. is a telecommunication services providerlooking to expand to a new territory Z. It is analyzing whether itshould install its own telecom towers or lease them out from aprominent tower-sharing company X-share, Inc. Leasing out 100towers would involve payment of €5,000,000 per year for 5 years.Erecting 100 new towers would cost €18,000,000 including the costof equipment and installation, etc. The company has to obtain along-term secured loan of €418,000,000 at 5% per annum. Owning atower has some associated maintenance costs such as security, powerand fueling, which amounts to €10,000 per annum per tower. Thecompany’s tax rate is 40% while its long-term weighted average costof debt is 6%. The tax laws allow straight-line depreciation for 5years. Determine whether the company should erect its own towers orlease them out. [14 marks]

Answer & Explanation Solved by verified expert
4.5 Ratings (785 Votes)
The annual cashflowsoutward due tothe lease fromY1 Y5 year 1 to year 55000000 1 04 3000000The yearly cashflow for the purchasing has three parts1 Loan repayment amount yearly2Yearly Maintenence Costs3Taxrelated costs in maintenance the depreciation cost interest payableCash Flow Table Period Number12345Loan repayment    See Answer
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