Comey Products has decided to acquire some new equipment having a $220,000 purchase price. The equipment will last four years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are 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. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question? Do not round intermediate calculations. Round your answer to the nearest dollar.

Comey Products has decided to acquire some new equipment having a $220,000 purchase price. The equipment will last four years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are 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. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question? Do not round intermediate calculations. Round your answer to the nearest dollar.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

See similar textbooks

Similar questions

The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Comey Products has decided to acquire some new equipment having a $300,000 purchase price. The equipment will last 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. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing 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 intermediate calculations. Round your answer to the nearest dollar.
Comey Products has decided to acquire some new equipment having a $240,000 purchase price. The equipment will last 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 5% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing 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 intermediate calculations. Round your answer to the nearest dollar.Comey Products has decided to acquire some new equipment having a $240,000 purchase price. The equipment will last 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…
Comey products has decided to acquire some new equipment having a $200,000 purchase price. The equipment will last 4 years and is in the MARCS 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. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question?
BigCo is considering leasing the new equipment that it requires, for $146000 a year, payable in advance. The cost of the equipment is $775000, and will last for 5 years. The expected scrap value at the end of 5th year is $140000. Assume that the equipment will be fully depreciated under straightline method. The tax rate is 35%, the cost of equity is 13% and the cost of debt is 10%. i. What is the net cost of buying? ii. What is the net cost of leasing? iii. What is the net advantage of leasing (NAL)? iv. What is the maximum lease payment that would make BigCo indifferent between leasing or buying?
ANB 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. $52,653
AFX Sdn Bhd is trying to decide whether to accept a business loan or a lease financing facility for an equipment purchase. The equipment cost $60,000 with 3-year economic life, depreciated annually based on MACRS 3-year class with the following rates: Year 1 = 33%; Year 2 = 45%; Year 3 = 15%; Year 4 = 7%. If AFX accepts the business loan option, the 3-year loan will attract an interest rate at 12% interest calculated on a yearly reducing balance. AFX would have to maintain the equipment with an annual maintenance fee of $4,000, payable after services have been rendered. Annual insurance premium is $1,400 on cash before cover basis. AFX is planing to sell the equipment after its useful life for $3,000. Should AFX opt for lease financing, the annual lease rental to be paid in advance is $21,000. You also intend to exercise the option to purchase the equipment for $6,000 at the end of the lease period. Your company’s tax rate is 35%. Company’s after-tax cost of debt is 8%. Which…
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. 2-Draw a BTCFD
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.
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. Use these templates below.
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.
Pulaski Starlight Inc. is evaluating a project. The project is expected to generated new sales of $1,718,798 and incur costs of $606,990 annually. The project will be depreciated using the MACRS approach. The equipment needed for the project will cost $4,495,137 and is considered to be a five year MACRS class. The company's tax rate is 28%. Given this information, what would be the project's third year operating cash flow? Answer in dollars and cents.