Jeff & Bezos is a fresh groceries delivery company. The company has access toborrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using22 % tax rate.The company would like to start using high-speed low-altitude drones to deliver grocerypurchases directly to residential customers' backyards. The required fleet of dronescosts $7,500,000. The fleet of drones, due to their heavy usage, would have no salvagevalue in four years. If the company chooses to buy them, the drones would be losingtheir economic value following the three-year property class under the MACRSdepreciation method.Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasingthem for an estimated pre-tax annual cost of $2,205,000 per year for four years from adifferent company, Nets & Flicks, that currently owns the required number of the drones.Jeff & Bezos' net advantage to leasing, a.k.a. NAL, equals(Do not roundintermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Ifyour answer is negative, don't forget to put the minus sign.)NAL

Cost of Buying Drones:Initial cost: $7,500,000MACRS depreciation over 4 years.Leasing Costs:Annual…

Answered: Jeff & Bezos is a fresh groceries…

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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Andy purchased a new drone last year for $1,500. He no longer uses the drone and wants to sell it. He currently values the drone at $400. Suppose Jeff wants to purchase a drone. His maximum willingness to pay for a drone is $700. Instructions: Enter your answers as a whole number. Suppose Andy and Jeff agree on a price of $500 for the drone. a. How much producer surplus will this transaction generate? $ b. How much consumer surplus will this transaction generate? 100 400 c. What will be the total surplus generated from this transaction? $ 90
Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $107,000 and is expected to generate an additional $43,000 in cash flows for five years. A bank will make a $107,000 loan to the company at a 15% interest rate for this equipment's purchase. Compute the recovery time for both the payback period and break-even time. (PV of $1. FV of $1. PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Complete this question by entering your answers in the tabs below. Payback Period Break even time Compute the recovery time for the payback period. Payback Period Choose Numerator: Choose Denominator: Payback Period Break even time Heels, a shoe manufacturer, is evaluating the costs and benefits of…
Ernie Bilko has a business idea. He wants to rent an abandoned gas station for just the months of November and December. He will convert the gas station into a drive-through Christmas wrapping station. Customers will drive in, drop off their gifts, return the next day, and pick up their wrapped gifts. He needs $338,500 to rent the gas station, purchase wrapping paper, hire workers, and advertise. If he borrows this amount at 6 and 1/2% interest for those two months, what size lump sum payment will he have to make to pay off the loan? (Round your answer to the nearest cent.)
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $1.4 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $1,970,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $8.8 million. If the company chooses to buy…
Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $90,000 and is expected to generate an additional $35,000 in cash flows for five years. A bank will make a $90,000 loan to the company at a 10% interest rate for this equipment’s purchase. Use the following table to determine the break-even time for this equipment. (Round the present value of cash flows to the nearest dollar.)
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $6,600,000, Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for $1,935,000 per year for four years. Assume that the tax rate is 23 percent. You can borrow at 8 percent before taxes. Assume that the scanner will be depreciated as three-year property under the MACRS depreciation. What is the NAL of the lease? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NAL
4-the return on a 10 percent coupon bond that initially sells for €1000 and sells for €900 one year later is . Please select one; a) -10 percent b) -5 percent c) O percent d) 5 percent e) 10 percent
Annie's Homemade currently owns one push cart along with a branded tent to facilitate off-site sales. The company is considering buying a second push cart and tent for $4,500 to expand its off-site sales opportunities. Because the company's cargo trailer has the capacity to transport two push carts, there is no need to buy an additional trailer at this time. Annie's provided the following estimates to assist with analyzing the investment in an additional push cart: Additional sales events per month (in June, July, August, and September) Average number of servings sold per event Selling price per serving Ingredients and packaging cost per serving Average time for manager to make one batch of 100 servings of ice cream Average time for employees to pre-package one serving of ice cream Pickup truck diesel fuel, oil, and diesel exhaust fluid expenses Average duration of each event (including drive time) Average number of employees working at each event Hourly wage rate for managers Hourly…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 24 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $3.2 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $2,130,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $9.9 million. If the company chooses to buy them, the drones would be…
Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $4,500,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a three year period. The fleet of drones, due to their heavy usage, would have no salvage value in three years. Calculate the pre-tax lease payment that would make both Jeff & Bezos and…
Ernie Bilko has a business idea. He wants to rent an abandoned gas station for just the months of November and December. He will convert the gas station into a drive-through Christmas wrapping station. Customers will drive in, drop off their gifts, return the next day, and pick up their wrapped gifts. He needs $331,700 to rent the gas station, purchase wrapping paper, hire workers, and advertise. If he borrows this amount at 6.5 interest for those two months, what size lump sum payment will he have to make to pay off the loan? (Round your answer to the nearest cent.) $ _______
Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $240,352. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7: Year 1 $390,600 2 400,200 3 410,000 4 425,200 5 432,400 6 435,500 7 436,300 The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $380,500. This new equipment would require maintenance costs of $94,900 at the end of the fifth year. The cost of capital is 9%. Use the net present value method to determine the following: (If net present value is negative then enter with negative sign…

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