. Should the manufacturing company lease of purchase the trucks?
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- Lucky Cement wants to evaluate an acquisition of an equipment worth Rs 300,000. Its marginal tax rate is 35 percent. If purchased, the depreciation of equipment will take place at straight line method. The salvage value of the equipment is assumed to be 30,000 at the end of its useful life of 10 years. If the equipment is purchased, Lucky cement will finance the asset through borrowing from bank at annual before tax cost of 10%. If equipment is leased, Lucky Cement can have the equipment at Rs 38000 pre-tax rate per year, which is to be paid at the beginning of each year. Company’s weighted average after tax cost of capital is 10 percent. Compute the net advantage to leasing What alternative, leasing or owning, should be chosen? ExplainANB Leasing is planning to lease an asset costing $210,000. The lease period will be 6 years. At the end of 6 years, the salvage value is estimated to be $30,000. The asset will be depreciated on a straight-line basis of $30,000 per year over the 6-year period. ANB's marginal income tax rate is 40%, but its average tax rate is only 31.5%. Assuming ANB Leasing requires a 12% after-tax rate of return on the lease, determine the required annual beginning of the year lease payments. a. $31,592 b. $46,120 c. $45,609 d. $52,653A contractor can buy dump trucks for ₱ 800,000 each or rent them for ₱ 1,200 per truck per day. The truck has a salvage value of ₱ 100,000 at the end of its useful life of 5 years. The annual cost of maintenance is ₱ 20,000. Using annual cost method and 14% interest rate, determine the number of days per year that a truck must be used to warrant its purchased. Use sinking fund method of depreciation.
- A firm is evaluating the acquisition of an asset that costs $68,200 and requires $3,930 in installation costs. If the firm depreciates the asset under MACRS, using a five year recovery period, see table attached: Determine the depreciation charge for each year.NUBD Co. purchase a machine for P180,000, which will be depreciated on the straight-line basis over a five year period with no salvage value. The related cash flow from operations, net of income taxes, is expected to be P45,000, a year. Assume that NUBD’s effective income tax rate is 40% for all years.What is the accounting rate of return on the initial increase in required investment?Tony Industries plan to sell a machine in the current tax year. The cost basis presented is RM500,000 and the accumulated depreciation is RM450,000. The effective income tax rate is 0.30. Determine: the minimum sold price required of the machine to gain on the disposal and (i) (ii) the revised minimum sold price required of the machine to gain on the disposal if the effective income tax rate adjusted to 0.50 while accumulated depreciation increased 10 %.
- Wajasetia Security company has received a contract to provide additionalsecurity for the outdoor theme park at Bangi Water World. They plan to proposea CCTV system equipment for use in the 11 -years contract. The equipment isexpected to cost RM115,000. Assume the recovery period for this product is 5years.(i) Calculate the annual depreciation amount and book value by using150% Decline Balance method. (ii)Refer to the result in Q1(b)(i), identify the book value at the end of year 3.A lessor made an investment of ₱550,000 in equipment with an expected life of 5 years. He determined that he will incur the following annual costs: Costs of sales₱120,000; Marketing, admin, and maintenance ₱150,000. Tax rate is 25%. Annual depreciation is ₱110,000. Cost of capital is 11%. The breakeven lease per year would be?a. ₱ 460,000 b. ₱ 503,717 c. ₱ 521,756d. ₱ 468,203 e. ₱ 436,127 f. ₱ 324,846A firm is evaluating an investment proposal to instal new milling machines. The project requires an initial investment of R 50000. The equipment has a lifespan of 5 years and no salvage value. The company operates under a tax rate of 55% and utilizes straight line depreciation. The estimated annual profits before depreciation from the investment are as follows: Year 1: 10000, Year 2: 11000, Year 3: 14000, Year 5: 15000 and year 5 R 25000. Compute the payback period and the Net Present Value at 10% discount rate, profit after tax for each year and the cash inflow for each year.
- 6. A contractor can buy dump trucks for P800,000.00 each(surplus) or rent them for P1,189 per truck per day. The truck has a salvage value of P100,000 at the end of its useful life of 5 years. Annual cost of maintenance is P20,000.00. If money is worth 14% per annum, determine the number of days per year a truck must be used to warrant the purchase of the truck. A. 200. B. 199 C. 145 D. 1025) ROT Ltd. is considering whether it should buy or lease equipment that costs 1.60 crores and has a post- tax salvage value of 16 lakh at the end of its life of 5 years. A finance company, CBK Ltd. has offered to lease the equipment for 5 years at annual lease payments of 40 lakh at the beginning of each year. CBK Ltd. will also maintain the equipment which would otherwise cost ROT Ltd. 2 lakh p.a. on an average. The owner of the equipment can claim depreciation on WDV basis at 25% each year. The company's tax rate is 30% and its cost of borrowing is 14.29% and the overall weighted average cost of capital is 15%. Should the company buy the asset or lease the equipment if the NPV of the equipment is - 12 lakh (negative)?NZ Ltd has decided to install a new item of plant, which will cost $500,000. The following alternative financing arrangements are available: Purchasing finance by borrowing Amount borrowed $500,000 Term of loan 5 years Interest rate 9.7% payable annually Lease plan Amount of finance $500,000 Term 5 years True interest rate 9.1% Annual instalments $128,880 Additional information The tax rate is 28%. Assume that tax benefits arising from deductible expenditures are received in the year of the expenditure. NZ Ltd uses the after-tax borrowing rate as a discount rate. Which financing option should NZ Ltd choose? Show your calculations of the cost of each financing option. Use whole numbers when rounding.