X Answer is complete but not entirely correct.Buy optionLease optionKiddy shouldchooseEA69BuyPV185,031 X158,206 X Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed ismanufactured by Lollie Corp. The machine can be used for 10 years and then sold for $10,000 at the end of its useful life. Lollie haspresented Kiddy with the following options (EV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriatefactor(s) from the tables provided.)1. Buy machine. The machine could be purchased for $160,000 in cash. All insurance costs, which approximate $5,000 per year, wouldbe paid by Kiddy2. Lease machine. The machine could be leased for a 10-year period for an annual lease payment of $25,000 with the first paymentdue immediately. All insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 10-year periodRequired:Assuming that a 12% interest rate properly reflects the time value of money in this situation and that all maintenance and insurancecosts are paid at the end of each year, determine which option Kiddy should choose. Ignore income tax considerations. (Negativeamounts should be indicated by a minus sign. Round your final answers to nearest whole dollar amount.)

Variables in the questions:Useful life of machine=10 yearsSale value at the end of its useful…

Answered: Kiddy Toy Corporation needs 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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Information for Terra Corp. Terra Corp is considering the purchase of a machine that is expected to cost $180,000. The machine will require an additional $40,000 to have it shipped, modified, and installed. The purchase of this machine is expected to require additional working capital of $20,000 upfront, which will be liquidated when the machine is sold off. Terra expects to use the machine for 4 years, and then sell it for $95,000. The machine will be fully depreciated over the four years, at a constant rate. In each of the four years, Terra’s revenues are expected to be $85,000 higher than they would be without the machine. Annual operating costs (not including depreciation) will also be higher, however, to the extent of $19,000. The firm pays a 30% rate in taxes, and its cost of capital is 7.5% The net present value of the project is estimated to be: $34,774 $37,694 $23,976 $16,353 $1,337
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Assume XYZ wishes to purchase a machine for $500k that will produce widgets which will sell for $50 each. Assume variable costs of $30/unit and other fixed costs will be $100k per year. Assume a tax rate of 25%, and assume that assets purchased will be in a CCA class with a rate of 20%. Assume further the assets purchased will have a salvage value of $20,000 after the 5 year life of the project, and that interest rates are 10%. a. Compute the after-tax contribution margin. b. Find the PV break-even volume.
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Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 10 years and then sold for $10,000 at the end of its useful life. Lollie has presented Kiddy with the following options: 1. Buy machine. The machine could be purchased for $160,000 in cash. All maintenance and insurance costs, which approximate $5,000 per year, would be paid by Kiddy. 2. Lease machine. The machine could be leased for a 10-year period for an annual lease payment of $25,000 with the first payment due immediately. All maintenance and insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 10-year period. Required: Assuming that a 12% interest rate properly reflects the time value of money in this situation and that all maintenance and insurance costs are paid at the end of each year, determine which option Kiddy should choose. Ignore…
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