39. Haystack, Inc. manufactures machinery used in the mining industry. On January2, 2021 the leased equipment with a cost of $480,000 to Silver Point Co. The 5-yearlease calls for a 10% down payment and equal annual payments at the end of eachyear. The equipment has an expected useful life of 5 years. Silver Point's incrementalborrowing rate is 10%, and it depreciates similar equipment using the double-declining balance method. The selling price of the equipment is $780,000, and therate implicit in the lease is 8%, which is known to Silver Point Co. What is the amountof interest expense recorded by Silver Point Co. for the year ended December 31,2021?PV Annuity DuePV Ordinary AnnuitySingle Sum8%, 5 periods6850810%, 5 periods62092a. $70,200b. $56,160c. $62,400d. $78,0004.312134.16986-12-3.992713.79079PV21

Lease is an agreement between a property owner and another party who wants to use their asset. the…

Answered: Haystack, Inc. manufactures machinery…

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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Locus Dominico, Company., a highly profitable maker of customized boats, isplanning to introduce a new model shortly. The firm must purchase equipmentimmediately at a cost of Sh.900,000. Freight and installation costs for this equipment willbe Sh.100,000. The equipment will be depreciated as a 5-year class asset under incometax act(straight line depreciation method). During the first year, Locus will haveincremental operating expenses of Sh.300,000 that are attributable to this project. Locusexpects to be able to sell 1,000 boats during year 2 at an average price of Sh.800 each andto incur operating expenses of Sh.300,000. Also, Locus expects its net working capitalinvestment will increase by Sh.50,000 during year 2. (Assume all operating costs andrevenues are incurred at the end of each year.) The marginal tax rate for Locus is 40percent.Required:What is the required net investment, and what are the year 1 and year 2 net cash flows?
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