Hard Hat Company is in the process of purchasing several large pieces of equipment from Machine Corporation. Several financingalternatives have been offered by Machine:1. Pay $1,130,000 in cash immediately.2. Pay $402,000 immediately and the remainder in 12 annual installments of $90,000, with the first installment due in one year.3. Make 12 annual installments of $132,000 with the first payment due immediately.4. Make one lump-sum payment of $1,720,000 six years from date of purchase.Required:Determine the best alternative for Hard Hat, assuming that Hard Hat can borrow funds at a(n) 7% interest rate.Note: Round your final answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVAof $1, PVA of $1. FVAD of $1 and PVAD of $1)Option 1Option 2Option 3Option 4cesThe best alterative for Hard HatPVI

To determine the best financing alternative for Hard Hat Company, we need to compare each option's…

Answered: Hard Hat Company is in the process of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 34P

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Bank Al Ain Islami provides a financing facility based on the Murabaha principle to Seif Construction to purchase specialized Equipment to be used for their construction project. The amount of financing is $15,000,000 at a constant rate of return of 10% for a period of 5 years. Due to some cash flow problems, Seif Construction paid the final installment in Year 6. Required: i. ii. Present a statement showing the amount of Net Receivable, Unearned Murabaha Income, and Murabaha Income for the whole duration of the contract.Prepare journal entries for Bank Al Ain Islami for the above transactions (YO-Y6).
Libby Company purchased equipment by paying $5,500 cash on the purchase date and agreed to pay $5,500 every six months during the next four years. The first payment is due six months after the purchase date. Libby's incremental borrowing rate is 6%. The equipment reported on the balance sheet as of the purchase date is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.) Multiple Choice $44,000. $44,108. $49,500. $38,608.
Libby Company purchased equipment by paying $5,600 cash on the purchase date and agreed to pay $5,600 every six months during the next four years. The first payment is due six months after the purchase date. Libby's incremental borrowing rate is 8%. The equipment reported on the balance sheet as of the purchase date is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)
The Prescott Welding Company needs toacquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchasethe truck for $45,000, which will be financed by thebank at an interest rate of 12%. The loan must berepaid in four equal installments, payable at the endof each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain thetruck at an annual cost of $1,200, also payable atyear-end. Alternatively, Prescott Welding could leasethe truck under a four-year contract for a lease payment of $12,000 per year. Each annual lease payment must be made at the beginning of each year.The truck would be maintained by the lessor. Thetruck falls into the five-year MACRS classification,and it has a salvage value of $10,000, which is theexpected market value after four years, at which timePrescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Weldinghas a marginal tax rate of 40% and a MARR of…
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Mansukh
A business wants to borrow $300,000 from a bank for a future investment. The bank offers a 5 year loan, compounded quarterly, at 5% interest on the debt. During the period of the bank loan, the company establishes a sinking fund to help discharge the bank loan, at 4%, compounded quarterly, using the future lump sum debt as the lump sum payment in the sinking fund. FIND: the quarterly deposits that the company must deposit into the sinking fund to pay off its bank debt in one lump sum.

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