Please correct answer and don't use hand rating and don't use Ai solution Quartz Corporation is a relatively new firm. Quartz has experienced enough losses during its early years to provide it with at least eight years of tax loss carryforwards, so Quartz's effective tax rateis zero. Quartz plans to lease equipment from New Leasing Company. The term of the lease is five years. The purchase cost of the equipment is $775,000. New Leasing Company is in the 22 percenttax bracket. There are no transaction costs to the lease. Each firm can borrow at 6 percent.a.What is Quartz's reservation price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b.What is New Leasing Company's reservation price?A is 183977.83. Just need B

Key Details:Purchase cost of equipment: $775,000New Leasing Company's tax rate: 22%Borrowing rate…

Answered: Quartz Corporation is a relatively new…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter19: Lease Financing

Section: Chapter Questions

Problem 7P

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Dunbar Corporation can either purchase an asset for $38,000, which will have no value after 13 years, or lease the same for 13 years with an annual lease payment of $4,458, due at the end of each year. The company's cost of debt is 8%. The IRS classifies the lease as a non-tax-oriented lease. What is the net advantage of leasing? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent.[Cost Account]
Lester Corporation is determining whether to lease or purchase new equipment. The firm is in the 38% tax bracket, and its after-tax cost of debt is currently 7%. The terms of the lease and the purchase are: Lease: there are annual end-of-year lease payments of $31,500 which are required over the 3-year life of the lease. All maintenance costs will be paid by the lessor. The lessee will be able to exercise its option to purchase the equipment for $6,000 at the termination of the lease. Purchase: The equipment which costs $77,000, can be financed entirely with a 12% loan which requires annual end-of-year payments of $32,059 for 3 years. The firm will depreciate the equipment under MACRS using a 3-year recovery period (33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $2,000 per year for a service contract that covers maintenance costs. 11. Calculate the present value of the cash outflow for the lease alternative. 12. Calculate the present value of the cash…
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JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 27% tax bracket, and its after-tax cost of debt is currently 9%. The terms of the lease and of the purchase are as follows: Lease: Annual end-of-year lease payments of $30,000 are required over the three-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $3,000 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 3 under the lease option. Purchase: The equipment costs $70,000 and can be financed with a 14% loan requiring annual end-of-year payments of $30,151 for three years. JLB will depreciate the equipment under MACRS using a three-year recovery period. JLB will pay $2,200 per year for a service contract that covers all maintenance costs;…
Riverside Inc. plans to purchase or lease $220,000 worth of new equipment. If purchased, the equipment will be depreciated on a straight-line basis over five years, after which it will be worthless. If leased, the annual lease payments will be $55,000 per year for five years. Assume Riverside’s borrowing cost is 8%, its tax rate is 35%, and the lease qualifies as a true tax lease. If Riverton purchases the equipment, what is the amount of the lease-equivalent loan? a. $292,884 b. $192,488 c. $197,358 d. $195,70 0 e. $190,237
The Safety Razor Company has a large tax-loss carry-forward and does not expect to pay taxes for another 10 years. The company is therefore proposing to lease $110,000 of new machinery. The lease terms consist of 7 equal lease payments prepaid annually. The lessor will take CCA on the machinery at a 30% rate and the pool will never close. The first CCA tax deduction is assumed to occur at the end of the first year. There is no salvage value at the end of the machinery's economic life. The tax rate is 35%,and the rate of interest is 11%. Wilbur Occam, the president of Safety Razor, wants to know the minimum lease payment that the lessor is likely to accept. (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) The minimum lease payment
Dunbar Corporation can purchase an asset for $30,000; the asset will be worthless after 14 years. Alternatively, it could lease the asset for 14 years with an annual lease payment of $3,653 paid at the end of each year. The firm’s cost of debt is 9%. The IRS classifies the lease as a non-tax-oriented lease. What is the net advantage to leasing?
Hull Manufacturing Co. must decide whether to purchase or lease a new piece of equipment. The equipment can be leased for $4,000 a year or purchased for $15,000. The lease includes maintenance and service. The salvage value of the equipment at the end of five years is $5,000. If the equipment is owned, service and maintenance charges (a tax-deductible cost) would be $900 a year. The firm can borrow the entire amount at a rate of 15% if they buy. The tax rate is 50%. Which method of financing would you choose? Use the following capital cost allowance amounts. Year Amount $4,500 3,150 2,205 1,543 1,081 2 3 4
Sheridan Company leased an office under a six-year contract, which has been accounted for as an operating lease. Faced with the downturn in the economy, the viable company decided to sub-lease the office. However, they have had no luck with this effort and the landlord will not allow the lease to be cancelled. The payments are $29000 per year and there are five years left on the lease. The company's most recent interest rate for financing from a bank is 11%. The risk-free rate on government bonds is 7%. What is the provision for the lease under IFRS?
Pike Industries is considering selling excess machinery with a book value of $150,000 (original cost of $475,000 less accumulated depreciation of $325,000) for $72,500 less a 5% brokerage commission. Alternatively, the machinery can be leased out for a total of $107,500 for five years, after which it is expected to have no residual value. During the period of the lease, Pike Industries' costs of repairs, insurance, and property tax expenses are expected to be $40,000. a. Prepare a differential analysis report for the lease or sell decision. PIKE INDUSTRIES Proposal to Lease or Sell Machinery Differential Analysis Report Differenti revenue from alternatives: Differential cost of alternatives: b. Based on the data presented, which is the most appropriate plan of action?
As an alternative to the borrow-and-buy plan, the equipment manufacturer informed Lewis that Consolidated Leasing would be willing to write a 4-year guideline lease on the equipment, including maintenance, for payments of $260,000 at the beginning of each year. Lewis's marginal federal-plus- state tax rate is 25%. You have been asked to analyze the lease-versus-purchase decision and, in the process, to answer the following questions. a. (1) Who are the two parties to a lease transaction? (2) What are the four primary types of leases, and what are their characteristics? (3) How are leases classified for tax purposes? (4) What effect does leasing have on a firm's balance sheet? (5) What effect does leasing have on a firm's capital structure? b. (1) What is the present value of owning the equipment? (Hint: Set up a time line that shows the net cash flows over the period t = 0 to t = 4, and then find the PV of these net cash flows, or the PV of owning.) (2) What is the discount rate for…

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