Question
Manama Investments is considering investment into Hospital Information
System, it has two choices via leasing or buying the software and equipment.
The purchase price is AED 550,000 and the machine has a 5-year life. If it buys
the machine Manama will need to fund it using capital that costs them 8% per
year. Manama estimates maintenance of the system will be AED 25,000 per
annum. Alternatively, the lease payments will be AED 140,000 per year for 5
years with rentals payable at the start of each year.Consider the theoretical cost
of Debt, Preference Shares and Ordinary Shares rank them from most expensive
to cheapest
Answer & Explanation
To rank the theoretical cost of Debt, Preference Shares, and Ordinary Shares
from most expensive to cheapest, we need to understand the typical
characteristics and costs associated with each type of financing:
1. Ordinary Shares (Equity):
Manama Investments is considering investment into Hospital Information
System, it has two choices via leasing or buying the software and equipment.
The purchase price is AED 550,000 and the machine has a 5-year life. If it buys
the machine Manama will need to fund it using capital that costs them 8% per
year. Manama estimates maintenance of the system will be AED 25,000 per
annum. Alternatively, the lease payments will be AED 140,000 per year for 5
years with rentals payable at the start of each year.Consider the theoretical cost
of Debt, Preference Shares and Ordinary Shares rank them from most expensive
to cheapest
Answer & Explanation
To rank the theoretical cost of Debt, Preference Shares, and Ordinary Shares
from most expensive to cheapest, we need to understand the typical
characteristics and costs associated with each type of financing:
1. Ordinary Shares (Equity):
