A mining company is trying to evaluate whether to purchase or lease a processing plant. The plant can be purchased for $2 000 000 cash or leased for $550 000 per year payable at the end of the year. Annual income is expected to be $1 500 000 with $500 000 annual operating costs. The life of the plant is estimated to be 5 years. The salvage value of the plant is estimated to be $500 000 at the end of the 5 year life, If MARR is 10%, calculate the present value for purchasing and leasing options and choose the feasible one. O a. $1.3M, $2.6M, leasing b. None O c. $2.5M, $3.0M, leasing O d. $2.1M, $1.7M, purchasing e. $2.7M, $2.3M, purchasing

A mining company is trying to evaluate whether to purchase or lease a processing plant. The plant can be purchased for $2 000 000 cash or leased for $550 000 per year payable at the end of the year. Annual income is expected to be $1 500 000 with $500 000 annual operating costs. The life of the plant is estimated to be 5 years. The salvage value of the plant is estimated to be $500 000 at the end of the 5 year life, If MARR is 10%, calculate the present value for purchasing and leasing options and choose the feasible one. O a. $1.3M, $2.6M, leasing b. None O c. $2.5M, $3.0M, leasing O d. $2.1M, $1.7M, purchasing e. $2.7M, $2.3M, purchasing

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Description: A mining company is trying to evaluate whether to purchase or lease a processing plant. The plant can bepurchased for $2 000 000 cash or leased for $550 000 per year payable at the end of the year. Annual incomeis expected to be $1 500 000 with $500

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

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SKR Inc. is considering the purchase of a new leather-cutting machine to replace an existing machine that has a book value of $5000 and can be sold for $ 1,500. The old machine is being depreciated as written down value method basis. The WDV rate is 20%. The old machine’s estimated salvage value 5 years from now is $0. The new machine will reduce fixed costs (before taxes) by $10,000 per year. The new machine will improve quality, thus increasing our leather sales from $25,000 to $35,000 per year. Variable costs are 45% of sales. The new machine has a 5-years life, it costs $20,200 and it can be sold for an expected $3,500 at the end of the third year. Because of the new sales, we will increase our inventory by $4,000, our accounts receivable by $500. The tax accountant has told SKR Inc that the new machine would also be depreciated using written down value method at 20%. Assume a 30% tax rate (corporate as well as capital gain) and a cost of capital of 15 per cent. You are required…
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