Need help with this accounting question Mitata Company is considering the purchase of new manufacturingequipment that will cost $35,000 (including shipping & installation). Mitatacan take out a 4-year, $35,000 loan to pay for the equipment at an interestrate of 8.40%.The loan and purchase agreements will also contain the followingprovisions:The annual maintenance expense for the equipment is expected to be $350.The equipment has a 4-year depreciable life. The Modified Accelerated CostRecovery System's (MACRS) depreciation rates for a 3-year asset are33.33%, 44.45%, 14.81%, and 7.41% respectively.The corporate tax rate for Mitata is 35%.Note: Mitata Company is allowed to take a full-year depreciation tax-savingdeduction in the first year.What will be the annual loan payment?a. $63,461.12b. $106.62c. $10,661.47d. $12,692.22

Step 1: Introduction to the Depreciation DeductionIn production of goods and providing services,…

Answered: Mitata Company is considering the…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000
What will be the annual loan payment?
BBL Inc. is considering an equipment for its new factory. It can either purchase the equipment for $55,200 or lease it from QuickLease with 8 annual lease payments of $8,320 (payable at the beginning of each year). The equipment has CCA rate of 26% and salvage value of $8,160 at the end of year 8. A. BBL has tax rate of 24% and cost of debt of 7.2%. The asset class remains open with positive UCC after the sale of the equipment. Calculate the NPV of leasing for BBL and the maximum annual lease payment it will pay. B. QuickLease has tax rate of 31% and cost of debt of 4.8%. The equipment is the only asset in the asset class for QuickLease. Calculate the NPV of leasing for QuickLease and the minimum annual lease payment it will ассept.
Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: •The annual maintenance expense for the equipment is expected to be $350.•The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.•The corporate tax rate for SBI is 40%.Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: ValueAnnual tax savings from maintenance will be:$140 Tax savings from depreciation Year 1 Year 2 Year 3 Year 4 $4,666…
Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: • The annual maintenance expense for the equipment is expected to be $350. • The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System’s (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. • The corporate tax rate for SBI is 40%. Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: Value Annual tax savings from maintenance will be: $140 Year 1 Year 2 Year 3…
Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: • The annual maintenance expense for the equipment is expected to be $350. The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. • The corporate tax rate for SBI is 40%. Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: Value Annual tax savings from maintenance will be: $140 Year 1 Year 2 Year 3 Year 4 Tax savings from depreciation $4,666 $6,223 $2,073…
Kotse Automotive is planning to expand its operation by planning to add a machine costing $90,000. The company is facing two possible options which are Option 1 - Lease arrangement which will require the company to pay $15,000 for 5 years and an option to purchase at $20,000 at the end of the lease Option 2 - Purchase the machine thru debt financing which would require the company to pay $20,000 for 5 years. The company is expected to spend $1,000 every year for 5 years for the machines repairs and maintenance. Which of the two options should the company choose if costs of debt is at 9%?
Pompeo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $95,000. The freight and installation costs for the equipment are $4,500. If purchased, annual repairs and maintenance are estimated to be $3,600 per year over the 4-year useful life of the equipment. Alternatively, Pompeo can lease the equipment from a domestic supplier for $29,200 per year for 4 years, with no additional costs. Question Content Area Prepare a differential analysis dated December 11 to determine whether Pompeo should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisLease Equipment (Alt. 1) or Buy Equipment (Alt. 2)December 11 Lease…
Swagger Manufacturing Corporation (SMC) is planning to invest in new machinery to produce a new product line. The invoice price of the machinery is $320,000. It would require $10,000 in shipping expenses and $20,000 in installation costs. The machinery falls in MACRS 3-year class with depreciation rates of 33.33% for the first year, 44.45% for the second year, 14.81% for the third year, and 7.41% for the fourth year. SMC plans to use the new machinery for four years and it is expected to have a salvage value of $75,000 after four years of use. SMC expects the new machinery to generate sales of 1,500 units in the first year. Unit growth is expected to be 4% after the first year. The company estimates that the new product will sell for $225 per unit in the first year with a cost of $150 per unit, excluding depreciation. Management projects that both the sale price and the cost per unit will increase by 3% per year due to inflation. Net working capital is projected to be 15% of next…
A firm can purchase a centrifugal separator (5-year MACRS property) for$17,000.The estimated salvage value is$3,000after a useful life of six years. Operating and maintenance (O&M) costs for the first year are expected to be$1,700.These O&M costs are projected to increase by$1,500per year each year thereafter. The income tax rate is23%and the MARR is12% after taxes. What must the uniform annual benefits be for the purchase of the centrifugal separator to be economical on an after-tax basis?
Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $19,900 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,600 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period (see the table attached for the applicable depreciation percentages) and expects to sell the machine to net $10,300 before taxes at the end of its usable life. The firm is subject to a 21% tax rate c. Assuming a five-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $8,895 or (2) $169,900 (before taxes) at the end of five years. d. Discuss the effect of sale price on terminal cash flow using your findings in part c.
Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $19,900 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,600 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period (see the table attached for the applicable depreciation percentages) and expects to sell the machine to net $10,300 before taxes at the end of its usable life. The firm is subject to a 21% tax rate. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. The following table can be used to solve for the terminal cash flow: (Round to the nearest dollar.) 3-year Proceeds from sale of proposed asset $ +/- Tax on sale of proposed asset $ Total after-tax proceeds-new $ + Change in net working capital $…

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