Cost of BorrowingComey Products has decided to acquire some new equipment having a $180,000 purchase price. The equipment willlast 4 years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333,0.4445, 0.1481, and 0.0741.) The firm can borrow at a 7% rate and pays a 25% federal-plus-state tax rate. Comeyis considering leasing the property but wishes to know the cost of borrowing that it should use when comparingpurchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question?(Hint: Use the shortcut method to find the after-tax cost of the loan payments.) Do not round intermediatecalculations. Round your answer to the nearest dollar.$

The cost of borrowing refers to the expense incurred by an individual or entity when obtaining funds…

Answered: Comey Products has decided to acquire…

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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What principal deposited 3 years ago will grow to $24,939.86 in 5 years and 4 months from now if money grows at 2.64% compounded annually? i need pv and fv and N for this
A new piece of equipment costs $500,000, and depreciated according to the 5 year MACRS schedule. Assume the equipment makes you earn 350,000 a year more, and increases the operating expenses by $100,000 annually. Assume a federal applicable tax rate of 32%. For year 2, calculate: (a) before tax cash flow (BTCF) (b) taxable income (c) taxes due (d) after tax cash flow (ATCF)
Your facility is undergoing a major expansion, which will require significant capitalinvestment into new machinery. The total cost of the machinery will be $7.2 Million, and theywill be purchased outright immediately. This machinery is considered a 7-year MACRSasset. However, you expect to use it for only six years before selling it for $1.5 Million. How much should the company deduct from their taxable income for depreciation expensesin year 3 for this machinery?a. $1,259,280b. $996,930c. $1,028,571d. $1,200,000
Nikul
Talia’s Tutus bought a new sewing machine for $45,000 that will be depreciated over 5 years using double-declining-balance depreciation with a switch to straight-line. Required: Find the depreciation charge each year. If the sewing machine is sold after 2 years for $32,000, what will be the after-tax proceeds on the sale if the firm’s tax bracket is 25%?
Floopy Co has decided to purchase new equipment. They are in the 38% tax bracket. The desired equipment costs $77,000 and it can be financed entirely with a 12% loan which requires annual end-of-year payments of $32,059 for 3 years. The firm will depreciate the equipment under MACRS using a 3-year recovery period (depreciation is 33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $2,000 per year for a maintenance contract. Calculate the present value of the cash outflows for the purchase alternative.
MTN is trying to decide whether to lease or buy some new equipment for its tool and die operations. The equipment costs ¢1.5 million has a 8-year life, and will be worthless after the 8 years. The pre-tax cost of borrowed funds is 8 percent and the tax rate is 32 percent. The equipment can be leased for ¢240,000 a year. What is the net advantage to leasing (NAL)?
Killion Company needs to purchase new equipment, but does not have enough cash to purchase it outright. Therefore, on 1/1/21, Killion finances the purchase of the equipment by borrowing $29,000 on a 4-year, 5% installment loan. The loan specifies that Killion needs to make 4 payments of $8,178 once a year for the next four years. Each installment payment goes towards both accrued interest and the principal on the loan. Each installment payment is made on December 31. repare the journal entries for Killion to record the note's issuance and the first installment payment. (Round your intermediate alculations and final answers to the nearest dollar amount.) View transaction list Journal entry worksheet of 33 ― Next >
Tanner Corporation is considering the acquisition of a new machine that is expected to produce annual savings in cash operating costs of $70,000 before income taxes. The machine costs $244,000, has a useful life of five years, and no salvage value. Tanner uses straight-line depreciation on all assets, is subject to a 30% income tax rate, and has an after-tax hurdle rate of 8 %. FV of $1 at FV of an ordinary annuity at PV of $1 at PV of an ordinary annuity at Yr .8% 8% 8% 8% 1 1.080 1.000 0.926 0.926 2 1.166 2.080 0.857 1.783 3 1.260 3.246 0.794 2.577 4 1.360 4.506 0.735 3.312 5 1.469 5.867 0.681 3.993 6 1.587 7.336 0.630 4.623 Required: If the machine's accounting rate of return on the initial investment is 6%. Compute the machine's net present value
Suppose that a company is considering a machine acquisition. The new machine will cost $60.000 and the shipping and installation costs are $20.000 , all are paid in cash. The old machine is fully depreciated and will be sold for $5.000 cash immediately with the purchase of the new one. The useful life of the new machine is 5 years and the company uses accelerated method of depreciation. Tax rate is 20% for the company.Please find the investment cash outflow?
The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $299,000. a. What is the book value of the equipment? b. If Jones sells the equipment today for $181,000 and its tax rate is 21%, what is the after-tax cash flow from selling it? Note: Assume that the equipment is put into use in year 1. a. What is the book value of the equipment? The book value of the equipment after the third year is $ (Round to the nearest dollar.)
Acompany is evaluating the addition of equipment to its presentoperations. They need to purchase equipment for $160,000. The five year MACRS GDS Recovery Method is appropriate forthe investment and the total tax rate (federal plus state) is 40%. Gross revenue is expected to be $30,000/year while maintenance costs are expected to be $5,000/year. It is expected that the operation will be shut down at the end of the fourth year with a salvage value of $20,000.1-Prepare a table showing your development of the ATCF's.

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