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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Judgo Corporation is attempting to determine whether it should lease or purchase equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: I Lease there will be annual end-of-year lease payments of $25,200 each year over the 3-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 be able to exercise its option to purchase the asset for $5,000 at termination of the lease. I Purchase The equipment which costs $60,000 can be financed completely with a 14% loan that requires annual end-of-year payments of $25,844 for 3 years. The firm in this case 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 $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the…
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;…
ANB Leasing is planning to lease an asset costing $210,000. The lease period will be 6 years. At the end of 6 years, the salvage value is estimated to be $30,000. The asset will be depreciated on a straight-line basis of $30,000 per year over the 6-year period. ANB's marginal income tax rate is 40%, but its average tax rate is only 31.5%. Assuming ANB Leasing requires a 12% after-tax rate of return on the lease, determine the required annual beginning of the year lease payments. a. $31,592 b. $46,120 c. $45,609 d. $52,653
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
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Northwest Lumber Company needs to expand its facilities. To do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 21% tax bracket, and its after-tax cost of debt is 9%. The terms of the lease and purchase plans are as follows: Lease: The leasing arrangement requires beginning-of-year payments of $19,800 over 5 years. All maintenance costs will be paid by the lessor. The lessee will exercise its option to purchase the asset for $24,000 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 5 under the lease option. Purchase: If the firm purchases the machine, its cost of $80,000 will be financed with a 14% loan amortised over 5-year period. The machine will be depreciated under MACRS using a 5-year recovery period. The firm will pay $2,000 per year at the beginning of the year for a service contract that covers all maintenance costs. The…
Northwest Lumber Company needs to expand its facilities. To do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 21% tax bracket, and its after-tax cost of debt is 9%. The terms of the lease and purchase plans are as follows: Lease: The leasing arrangement requires beginning-of-year payments of $19,800 over 5 years. All maintenance costs will be paid by the lessor. The lessee will exercise its option to purchase the asset for $24,000 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 5 under the lease option. Purchase: If the firm purchases the machine, its cost of $80,000 will be financed with a 14% loan amortised over 5-year period. The machine will be depreciated under MACRS using a 5-year recovery period. The firm will pay $2,000 per year at the beginning of the year for a service contract that covers all maintenance costs. The…
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?

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