s. The after tax cash outflow associated with the purchase option in Year 1 is? t. The after-tax cash outflow associated with the purchase option in Year 2 is? u. The after tax cash outflow associated with the purchase option in Year 3?
note: can you help me answer the question for s, t and u?
Lee Wah Press (LWP) is considering a leasing arrangement to finance some special printing machines that it needs for production during the next three years.
A planned change in the company’s production technology will make the new machine obsolete after 3 years. LWP will depreciate the new machine on a straight-line basis towards zero salvage value. The firm can borrow the installed cost of $480,000, at 10% interest per annum, calculated on an annual reducing balance, to buy the new machine or make three equal beginning-of-year lease payments of $210,000 should it decide to take up lease financing.
Annual maintenance costs associated with ownership, payable at the end of year, are estimated at $25,000. Annual insurance premium associated with the purchase is estimated to be at $6,000, payment is on a cash-before-cover basis. Should LWP opt for lease financing, all other costs will be borne by the lessor. LWP tax rate is 40%.
What is the net advantage to leasing (NAL)? Which option should LWP select, lease financing or purchase outright via bank borrowing?
a. The annual after-tax
b. The present value of the after-tax cash outflows of the lease option is?
c. The annual loan payment amount of the purchase option in Year 1, Year 2 and Year 3 is?
d. The interest expense of the purchase option in Year 1 is?
e. The interest expense of the purchase option in Year 2 is?
f. The interest expense of the purchase option in Year 3 is?
g. The annual maintenance cost associated with the purchase option in Year 1, Year 2, and Year 3 is?
h. The annual insurance premium associated with the purchase option in Year 1, Year 2, and Year 3 is?
i. The annual depreciation amount associated with the purchase option in Year 1, Year 2 and Year 3 is?
j. The total deduction amount for the purchase option eligible for tax shield in Year 0 is?
k. The total deduction amount for the purchase option eligible for tax shield in Year 1 is?
l. The total deduction amount for the purchase option eligible for tax shield in Year 2 is?
m. The total deduction amount for the purchase option eligible for tax shield in Year 3 is?
n. The tax shield amount in Year 0 is?
o. The tax shield amount in Year 1 is?
p. The tax shield amount in Year 2 is?
q. The tax shield amount in Year 3 is?
r. The after-tax cash outflow associated with the purchase option in Year 0 is?
s. The after tax cash outflow associated with the purchase option in Year 1 is?
t. The after-tax cash outflow associated with the purchase option in Year 2 is?
u. The after tax cash outflow associated with the purchase option in Year 3?
v. The present value of the after-tax cash outflows of the purchase option is?
w. The Net Advantage of Leasing (NAL) is?
x. Should LWP lease or purchase the special printing machine?
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