Cost of BorrowingComey Products has decided to acquire some new equipment having a $190,000 purchase price. The equipment will last 4 years and is in the MACRS 3-yearclass. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 11% rate and pays a 25%federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasingto leasing and has hired you to answer this question. What is the correct answer to Comey's question? (Hint: Use the shortcut method to find the after-tax costof the loan payments.) Do not round intermediate calculations. Round your answer to the nearest dollar.$

lease is kind of arrangement where there is no need of initial investments and equipment can be used…

Answered: mey Products has decided 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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Please answer questions 1-7 based on the following information: • You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. • The truck's basic price is $40,000, and it will cost another $5,000 to modify it for special use by your firm. • The truck falls in the MACRS 3-year class, and it will be sold after three years for $6,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $1,500. The truck will have no effect on revenues, but it is expected to save the firm $10,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40%. 1. What is CFFA at year 0? a. -$48,500 b. -$46,500 c. -$47,000 d. -$50,000 What is depreciation at year 2? a. $20,250 b. $19,800 c. $27,000 d. $18,400 What is CFFA at year 2? a. $10,000 b. $13,220 c. $14,100 d. $22,800 2. 3.
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
A warehouse was purchased for $9MM ($2MM down +$7MM loan) 5 years ago and is recently sold for $10.1MM gross sales price. Assume the following: 27% of the purchase price was attributable to land value • the current mortgage balance is $6.1MM • 25% tax rate on accumulated depreciation • 15% tax rate on capital gain. • 5% selling cost. What is the tax due on depreciation recapture at sale?
I want answers of (d) and (e)
Keating Co. is considering disposing of equipment with a cost of $62,000 and accumulated depreciation of $43,400. Keating Co. can sell the equipment through a broker for $28,000, less a 9% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $47,000. Keating will incur repair, insurance, and property tax expenses estimated at $12,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is Oa. $6,664 Ob. $11,424 Oc. $14,280 Ⓒd. $9,520
Finley Company is looking for a new office location and sees a building with a fair value of $740,000. Finley also notices that much of the equipment in the existing building would be useful to its own operations. Finley estimates the fair value of the equipment to be $114,000. Finley offers to buy both the building and the equipment for $790,000, and the offer is accepted. Determine the amounts Finley should record in the separate accounts for building and equipment. (Do not round intermediate calculations.)
Big Sky Hospital plans to obtain a new MRI that costs $1.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume that the following facts apply to the decision: - The MRI falls into the three-year class for tax depreciation, so the MACRS allowances are 0.33, 0.45,0.15, and 0.07 in Years 1 through 4, respectively. - Estimated maintenance expenses are $75,000 payable at the beginning of each year whether the MRI is leased or purchased. - Big Sky's marginal tax rate is 40 percent. - Big Sky's cost of debt is 15 percent. - If leased, the lease (rental) payments would be $400,000 payable at the end of each of the next four years. - The estimated residual (and salvage) value is $250,000. What is the IRR of the lease
a). qw Inc. is considering the purchase of a $116,000 piece of equipment. The equipment is classified as 5-year MACRS property. The company expects to sell the equipment after two years at a price of $50,000. The tax rate is 35 percent. What is the expected after-tax cash flow from the anticipated sale?
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(d) If the old machine is sold for $5,000 now instead of $2,500, what would be the amount of the gains tax?(e) If the old machine had been depreciated by 175% DB and then by a switch to SL depreciation, what would be the current book value?(f) If the old machine were not replaced by the new one and has been depreciated by the 175% DB method, when would be the time to switch from DB to SL depreciation'?
what is the sale price?
A user is considering whether to lease or purchase a 50,000-square-foot, free-standing building. The user is a corporation whose tax rate is 21 percent for all sources of income. The corporation's after-tax discount rate is 9 percent. The following T-bars are the result of an after-tax analysis performed to assist the corporation in making the decision to lease or own the building. Minus Lease Equals Differential ΕΟΥ Purchase 0 ($972,000) ($132,531) ($132,901) 3 ($134,258) ($135,727) ($137,318) 6 ($139,041) 7 ($140,908) 8 ($142,929) 9 ($145,117) 10 ($148,370) + $1,516,391 $0 ($972,000) ($158,400) $25,869 ($158,400) $25,499 ($158,400) $24,142 ($158,400) $22,673 ($158,400) $21,082 ($166,320) $27,279 ($166,320) $25,412 ($166,320) $23,391 ($166,320) $21,203 ($166,320) $1,534,341 What is the after-tax present cost of occupancy for the lease alternative? $1.534.341 X A 30

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