2. Roofing Company wants to purchase equipment costing $275,000 today. It is expected that Roofing Company would lease out this equipment for the next 5 years. Roofing Company would get paid $75,000 each year with the first payment being made at the beginning of the lease period. The coupon rate is 7%. Requirement: Determine if it makes sense for Roofing Company to purchase and then lease this equipment especially since the equipment's useful life is 5 years. Explain your position with workings.

2. Roofing Company wants to purchase equipment costing $275,000 today. It is expected that Roofing Company would lease out this equipment for the next 5 years. Roofing Company would get paid $75,000 each year with the first payment being made at the beginning of the lease period. The coupon rate is 7%. Requirement: Determine if it makes sense for Roofing Company to purchase and then lease this equipment especially since the equipment's useful life is 5 years. Explain your position with workings.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Your firm is considering purchasing an old office building with an estimated remaining service life of 25 years. Recently, the tenants signed a long-term lease, which leads you to believe that the current rental income of $250,000 per year will remain constant for the first five years. Then the rental income will increase by 10% for every five-year interval over the remaining life of the asset. That is, the annual rental income would be $275,000 for years 6 through 10, $302,500 for years 11 through 15, $332,750 for years 16 through 20, and $366,025 for years 21 through 25. You estimate that operating expenses, including income taxes, will be $85,000 for the first year and that they will increase by $5,000 each year thereafter. You also estimate that razing the building and selling the lot on which it stands will realize a net amount of $50,000 at the end of the 25-year period. If you had the opportunity to invest your money elsewhere and thereby earn interest at the rate of 12% per…
Net advantage to leasing (NAL) ABC Corp is considering a leasing arrangement to finance some machinery it needs for the next 3 years. The depreciation schedule and salvage value are given below. It can borrow $5,000,000, the purchase price, at 10% and buy the machinery, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year (the loan will be repaid in full in 3 years). The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $250,000 (paid at the end of the year), but this cost would be borne by the lessor if it leases. What is the net advantage to leasing (NAL)?
A store has 5 years remaining on its lease in a mall. Rent is $2,100 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,500 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month). a. Should the new lease be accepted? (Hint: Be sure to use 1% per month.) -Select- ✓ b. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and old leases? (Hint: Find FV of the old lease's original cost at t = 9; then treat this as the PV of a 51-period annuity whose payments represent the rent during months 10 to 60.) Do not round…
i need the answer quickly
You need a car and decide to lease for 36 months. The original price is $20,000 and the trade value in 36 months, assuming you don't exceed the mileage allowance, is $5,000 (treat this as a future value). No down payment is required. If the interest rate is 9% APR compounded monthly, what is the lease payment? I need it witha solutuion $503.38 $5066.37 $5100.15 $510.67
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period: The value of the car is $15,000 at the beginning of the lease period, and its projected residual value at the end of three years is $4,000. The lease requires a $500 down payment. Monthly payment $315 Acquisition fee $300 Disposition charge $150 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were equal to or less than?
Kim Inc. must install a new air-conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are shown here. Kim's WACC is 6%. HCC LCC 0 -Select- 1 -$50,000 -$50,000 -$610,000 -$50,000 -$90,000 -$175,000 -$175,000 -$175,000 2 -Select- 3 -Select- ✓ 4 -$50,000 -$175,000 a. Which unit would you recommend? I. Since all of the cash flows are negative, the IRR's will be negative and we do not accept any project that has a negative IRR. II. Since all of the cash flows are negative, the NPV's cannot be calculated and an alternative method must be employed. III. Since all of the cash flows are negative, the NPV's will be negative and we do not…
Assume an apartment has a floor area of 3,000 SF. The existing rent per month is $3,000. The market level rent is $15,000 per month. Assume that the tenant is willing to enter into a voluntary vacate agreement to be bought out of his lease and that you are now negotiating a buy out price. The apartment requires an additional $200,000 in renovation to get it up to market standards. If a prevailing cap rate for this apartment is 4.0%, at what buy out price is the incremental value created by the landlord for this unit after renovations equal to zero? O $3,40,000 O $2,350,000 O $1,000,000 O $3,100,000
Compare the cost of the following lesing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Select one: a. $2,200 b. $2,000 c. $1,550 d. $1,450
A real estate broker decides to lease a car for 36 months. Suppose the annual interest rate is 7.8%, the negotiated price is $48,000, there is no trade-in, and the down payment is $3,000. Find the monthly lease payment (in dollars). Assume that the residual value is 48% of the MSRP of $51,800.
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is $25,000, and its projected residual value at the end of five years is $10,000. Monthly payment $450 Capital cost reduction $1,700 Disposition charge $400 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Group of answer choices $14, 100. $15,500. $12,900. $400.
Kuehner estimates that it can lease Parker Road Plaza for $18.50 per square foot (GLA) base rent with a 3 percent overage on gross sales in excess of $200 per square foot (GLA). The company expects rents to increase by 5 percent per year during the lease period and tenant reimbursements to run $8 per square foot (GLA) and to increase at the same rate as rents. Kuehner expects to have the shopping center 70 percent leased during the first year of operation After that, vacancies should average about 5 percent per year. The vacancy losses should be cal-culated on the entire gross potential income, which includes minimum rents, percentage rents and tenant reimbursements. Sales, which are expected to average $210 per square foot (GLA) for the first year of operation, should grow at 6 percent per year. The operating expenses are expected to average $14 per square foot of GLA for the first year and will increase at the same rate as the rents. Kuehner will collect an additional 5 percent of…

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