Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,200. The freight and installation costs for the equipment are $630. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,480 per year for four years, with no additional costs. Prepare a differential analysis dated March 15 to determine whether Laredo Corporation should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0". Differential Analysis Lease (Alt. 1) or Buy (Alt. 2) Equipment March 15 Buy Equipment (Alternative 1) (Alternative 2) (Alternative 2) Lease Differential Equipment Effects Costs: Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Total costs Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.

Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,200. The freight and installation costs for the equipment are $630. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,480 per year for four years, with no additional costs. Prepare a differential analysis dated March 15 to determine whether Laredo Corporation should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0". Differential Analysis Lease (Alt. 1) or Buy (Alt. 2) Equipment March 15 Buy Equipment (Alternative 1) (Alternative 2) (Alternative 2) Lease Differential Equipment Effects Costs: Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Total costs Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following Machine A could be purchased for $36,000. It will last 10 years with annual maintenance costs of $1,200 per year. After 10 years the machine can be sold for $3,780. Machine B could be purchased for $30,000. It also will last 10 years and will require maintenance costs of $4,800 in year three, $6,000 in year six, and $7,200 in year eight. After 10 years, the machine will have no salvage value. Required: Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year, ignore income tax considerations. Calculate the present value of Machine A & Machine B. Which machine Esquire should purchase? Note: Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round…
Bramble Industries is considering the purchase of new equipment costing $1,430,000 to replace existing equipment that will be sold for $157,000. The new equipment is expected to have a $203,000 salvage value at the end of its 4-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 34,800 units annually at a sales price of $30 per unit. Those units will have a variable cost of $14 per unit. The company will also incur an additional $87,000 in annual fixed costs.Identify the amount and timing of all cash flows related to the acquisition of the new equipment. (Enter negative amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Cash Flow Timing Amount Purchase of new equipment Year 0Year 1Year 2Year 3Year 4Years 1-4 $ Salvage of old equipment Year 0Year 1Year 2Year 3Year 4Years 1-4 Sales revenue Year 0Year 1Year 2Year 3Year 4Years 1-4…
Steamboat Springs Furniture, Inc., is considering purchasing a new finishing lathe that costs $61,515.00. The lathe will generate revenues of $99,298.00 per year for five years. The cost of materials and labor needed to generate these revenues will total $50,526.00 per year, and other cash expenses will be $10,290.00 per year. The machine is expected to sell for $9,266.00 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Steamboat Springs' marginal tax rate is 36.00 percent, and its cost of capital is 14.00 percent. What is the NPV of the project?
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the initial investment outlay for this project? Group of answer choices $140200 $150,200 $35,000 $130,200
Midwest Airlines (MWA) is planning to expand its fleet of jets to replace some old planes and to expand its routes. It has received a proposal to purchase 112 small jets over the next 4 years. What annual net revenue must each jet produce to break even on its operating cost? The analysis should be done by finding the EUAC for the 10-year planned ownership period. MWA has a MARR of 12%, purchases the jet for $22 million, has operating and maintenance costs of $3.2 million the first year, increasing 8% per year, and performs a major maintenance upgrade costing $4.5M at end of Year 5. Assume the plane has a salvage value at end of Year 10 of $13 million.
Bridgeport Industries is considering the purchase of new equipment costing $1,280,000 to replace existing equipment that will be sold for $194,000. The new equipment is expected to have a $220,000 salvage value at the end of its 5-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 32,800 units annually at a sales price of $29 per unit. Those units will have a variable cost of $15 per unit. The company will also incur an additional $86,000 in annual fixed costs. Identify the amount and timing of all cash flows related to the acquisition of the new equipment. (Enter negative amounts using a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Cash Flow Timing Amount Purchase of new equipment $4 Salvage of old equipment Sales revenue Variable costs Additional fixed costs Salvage of new equipment >
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the after-tax cash flow from selling the machine at the end of year 3? Group of answer choices $21,935 $30,000 $8,065 $2,600
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $5,300. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $230,000 per year. Cost of goods sold will be 61% of sales. The project will require an increase in net working capital of $5,300. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $20,000. The marginal tax rate is 39% and DSSS Corporation’s appropriate discount rate is 15%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the total cash flow generated in year 3? Group of answer choices $71,719 $74,988 $19,488 $55,501
Xtra Mechanical, Inc. is a manufacturer of machine parts with locations in the United States. It is considering entering into an eight year supply agreement with a customer where it will supply certain parts to the customer for their products. The project will require Xtra to purchase a new machine at the begining of the project and the cost of the machine is $8,500,000. At the end of the project, the machine is expected to be sold in the used market for 20% of the original cost before paying taver. The five year MACRS depreciation will be used for tax purposes. The depreciate rates are shown below. There is an initial networking capital investment of $15,000 and no further investment in not working capital is required. We assume that all the money tied up in the networking capital account will be recovered by the end of the project Revenues from the contract per year are shown below. Cost of goods sold is expected to be 50% of revenues. In addition to cost of goods seld, the project…
Cardinal Company is considering a project that would require a $2,782,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $200,000. The company’s discount rate is 18%. The project would provide net operating income each year as follows: Sales $ 2,873,000 Variable expenses 1,019,000 Contribution margin 1,854,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 754,000 Depreciation 516,400 Total fixed expenses 1,270,400 Net operating income $ 583,600 Required:If the equipment’s salvage value was $400,000 instead of $200,000, what would be the project’s simple rate of return? (Round your answer to 2 decimal places.)
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the depreciation expense in year 2? Group of answer choices $10,196 $20,379 $61,163 $45,862
DSSS CorporationDSSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $135,000. The cost of shipping and installation is an additional $2,600. The asset will fall into the 3-year MACRS class. The year 1- 4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $215,000 per year. Cost of goods sold will be 64% of sales. The project will require an increase in net working capital of $2,600. At the end of three years, DSSS plans on ending the project and selling the manufacturing equipment for $30,000. The marginal tax rate is 36% and DSSS Corporation’s appropriate discount rate is 12%. The fixed expenses is $12,000.Refer to DSSS Corporation. What is the total cash flow generated in year 3? Group of answer choices $63,875 $73,727 $49,192 $24,535