Problem 21-10 Leasing and Salvage ValueThe Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that itmust use the system to stay competitive; it will provide $3.6 million in annual pretax costsavings. The system costs $8.6 million and will be depreciated straight-line to zeroover five years. Wildcat's tax rate is 21 percent and the firm can borrow at 7 percent.Lambert's policy is to require its lessees to make payments at the start of theyear. Suppose it is estimated that the equipment will have an aftertax residual value of$820,000 at the end of the lease. What is the maximum lease payment acceptable toWildcat? (Do not round intermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)Lease payment

Answered: Problem 21-10 Leasing and Salvage Value…

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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Question 17 A $65,000 machine with a 7-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $78,000, with a 10-year class life. The new machine will non increase sales, but will decrease operating costs by $13,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?
Intro Time Weiner Inc. is now at the end of the final year of a project. The firm originally bought some project equipment for $46,000, which could now be sold for $27,600. 44% of the equipment cost has already been depreciated. The company's tax rate is 34%. Part 1 What is the after-tax salvage value? If the equipment's final market value is less than its book value, the firm will receive a tax credit as a result of the sale. 0+ decimals Attempt 1/1 Save
Question 13 Mack Company has a machine with a book value of $80,000 and a remaining four-year useful life. A new machine is available at a cost of $110,000, and Mack can also receive $50,000 for trading in its old machine. The new machine will reduce variable manufacturing costs by $15,000 per year over its four-year useful life. Show the computations as to whether the machine should be replaced or kept.
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Problem 7-2 Scenario Analysis We are evaluating a project that costs $520,000, has a life of 6 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 73,000 units per year. Price per unit is $45, variable cost per unit is $30, and fixed costs are $840,000 per year. The tax rate is 21 percent, and we require a return of 15 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Best-case NPV Worst-case NPV
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