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Summary QuestionManama Investments is considering investment into Hospital Information System, it

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Manama Investments is considering investmentQuestionManama 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 ...

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  • October 6, 2024
  • 3
  • 2024/2025
  • Summary

Subjects

  • the lease payments wil
  • manama investments is considering investmentquesti
  • it has two choices via leasing or buying the soft
  • 000 and the machine has a 5 year life if it buys
  • 000 per annum alternatively

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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):

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