Nikul Nodhead College needs a new computer. It can either buy it for $350,000 or lease it from Compulease. The lease terms requireNodhead to make six annual payments (prepaid) of $82,000. Nodhead pays no tax. Compulease pays tax at 35%. Compulease candepreciate the computer for tax purposes straight-line over five years. The computer will have no residual value at the end of year 5.The interest rate is 8%.a. What is the NPV of the lease for Nodhead College?Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer tothe nearest whole number.b. What is the NPV for Compulease?Note: Do not round intermediate calculations. Round your answer to the nearest whole number.c. What is the overall gain from leasing?Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer tothe nearest whole number.a. Net present valueb. Net present valuec. Overall gain$ (59,402)

The problem presented involves a leasing scenario where Nodhead College has the option to either…

Answered: Nodhead College needs a new computer.…

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter4: Gross Income: Concepts And Inclusions

Section: Chapter Questions

Problem 40P

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Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from Compulease. The lease terms require Nodhead to make 6 annual payments (prepaid) of $58,000. Nodhead pays no tax. Compulease pays tax at 30%. Compulease can depreciate the computer for tax purposes at a CCA rate of 25%, and will close the asset pool at the end of the sixth year. The first CCA tax saving is available in year 0. The computer will have no residual value at the end of year 5. The interest rate is 9%. a. What is the NPV of the lease for Nodhead College? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ b. What is the NPV for Compulease? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ c. What is the overall gain from leasing? (Round your answer to the nearest dollar. Use minus sign to enter loss, if any.) Overall gain (loss)
Startle Corporation wants to purchase a new production machine. They currently have an old machine, which is operable for five more years and is expected to have a zero-disposal value at the end of five years. If the company buys the new machine, the old machine will be sold now for $65,000 (book value is $73,000). The new machine will cost $600,000 and will be depreciated for tax purposes on a straight-line basis over its useful life of 5 years. The new machine will not have a salvage value and will not be sold after its useful life. An additional cash investment in working capital of $50,000 will be required if the new machine is purchased. The investment is expected to generate $75,000 in before tax cash net inflows during the first year of operation. The expected before tax cash net inflow for years two through five is $220,000 each year. These cash flows do not include depreciation and are recognized at the end of each year. The working capital investment will not be recovered at…
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Your firm needs a computerized machine tool lathe which costs $48,000 and requires $11,800 in maintenance for each year of its 3- year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent. If the lathe can be sold for $4,800 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.) Salvage value after tax
Your firm needs a computerized machine tool lathe which costs $48,000 and requires $11,800 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent. If the lathe can be sold for $4,800 at the end of year 3, what is the after-tax salvage value? Give typing answer with explanation and conclusion

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