The loan payment (principal plus interest) is $4,475 per year. The present value interest factor for a 5-year annuity at 15%: $15,000 / 3.3522.The $5,000 salvage value is a reduction to the cost of owning and results in an after tax cost of owning the equipment of $5,197.EXERCISE 14: PURCHASE VERSUS LEASE CALCULATIONHull Manufacturing Co. must decide whether to purchase or lease a new piece ofequipment. 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 atthe end of five years is $5,000. If the equipment is owned, service and maintenancecharges (a tax-deductible cost) would be $900 a year. The firm can borrow the entireamount at a rate of 15% if they buy. The tax rate is 50%. Which method of financingwould you choose?Use the following capital cost allowance amounts.YearAmount1$4,5003,1502,2051,5431,081345

Capital budgeting is a company’s formal process used for evaluating potential expenditures or…

Answered: The loan payment (principal plus…

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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Caddis Company acquired a building with a loan that requires payments of $19,000 every six months for 3 years. The annual interest rate on the loan is 8%. What is the present value of the building? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Multiple Choice O O O O $99,600 $114,000 $38,988 $65,402 $48,965
APPLE Company leased a manufacturing machine from 123 Company on 1/1/2020 for 10 years. The lease terms are as follows: a. 123 assumes 10% interest b. First rent is payable on 1/1/2020 and on 12/31 the remaining life of the lease c. Estimated economic life of the aircraft is 10 years. d. Cost of the aircraft to 123 is $500,000. e. 123 wants to recover its investment and earns A. What type of lease is this for APPLE and 123? B. Calculate the annual rent. C. Make journal entries by both APPLE and 123 for the first year (1/1/20 to 12/31/2
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Written report with the following content: • Appendix1: Leasing Explain the calculations. Your recommendations Objective: Should FFT lease or construct their own production facility Option 1: Construct Costs to incur: Buying land, construct building and getting ready for use (FFT has these funds available in their bank account today so no mortgage is needed) $ 1,200,000 Taxes, insurance, and repairs (per year) $110,000 Intended years of use 15 Projected market value in 15 years $ 1,250,000 Option 2: Lease Intended years of use 15 Deposit required today (this deposit will be returned to FFT when the lease contract is complete is 15 years) $ 100,000 Annual lease payment $ 160,000 Property taxes (annual) to be paid by FFT $ 15,000 Insurance (annual) to be paid by FFT $ 15,000 Required rate of return 8% Methodology: The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction. Based on the analysis, they will recommend the preferred option…
Assume that a company is choosing between two alternatives-lease a piece of equipment for five years or buy a piece of equipment and sell it in five years. The costs associated with the two alternatives are summarized as follows: Lease Buy $ 60,000 $ 6,000 Purchase cost of equipment Annual operating costs Immediate deposit Annual lease payments Salvage value (5 years from now) $ 8,000 Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value analysis with a discount rate of 12%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it? $ 25,000 $ 18,000
Triple Passion Group (TPG) plans to install a new dryer worth RM1.5 million at their snack processing plant. The acquisition of the asset can be done through a full bank loan with an interest rate of 5 percent per annum, and paid in annual installments for 5 years. Another alternative available at this time is for TPG to lease the machine from the leasing company Local Machinary Leasing (LML) Sdn Bhd. Based on the terms of the lease offered by LML, the financial manager of TPG found that there was some important information related to the machine lease that needed to be examined as follows; i. The dryer will be depreciated according to the straight line method for 5 years. ii. The maintenance cost of the machine is estimated at RM75,000 per year. iii. The current corporate tax rate is 28%. iv. The annual lease fee charged by LML Sdn Bhd is RM400,000 per annum for 5 years. v. During the lease period, the lessee is responsible for paying an insurance charge of RM30,000 annually. vi. If…
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1. What amount should be recorded initially as cost of the right of use asset? 2. What is the annual depreciation of the right of use asset?
Question 1) Nascar Company has two alternatives for a new truck investment: Buy or lease. Buying option: The purchasing cost of the truck is 230.000 dollars. The economic life will be five years and at the end fifth year the truck will have a salvage value, 40.000 dollars Repair and insurance costs: 1.year 10.000 dollars 2.year 15.000 3.year 20.000 4.year 25.000 5.year 28.000 Leasing option: Lease period: 5 years Annual lease payments: 60.000 dollars (payments will be made at the beginning of each year) Also, at the beginning of contract period Nascar Co. must pay a deposit, 20.000 dollars. This deposit amount will be refunded at the end of fifth year. According to the leasing contract all repair and insurance expenses are under the responsibility of leasing company. Make your decision according to Net Present Value Method. (Assume the discount rate of the company is 12%) Present value of 1 dollar Period Discount rate (12%) 1 0,893 2 0,797 3…
How much is the gross profit realized in 2018? A. (P250,000) B. (P50,000) C. P250,000 D. P1,100,000
Eastern Edison Company leased equipment from Low-Tech Leasing on January 1, 2018. Low-Tech recently purchased the equipment at a cost of $366,951. Other information: 5 years $88,000 on January 1 each year 5 years Lease term Annual payments Life of asset Fair value of asset $366,951 Implicit interest rate 10% Incrementa1 rate 10% There is no expected residual value. Required: Prepare appropriate journal entries for Low-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.) View transaction list Journal entry worksheet 1 2 3 Record the entry at the inception of the lease. Note: Enter debits before credits. Date General Journal Debit Credit January 01, 2018
On January 1, 2020, Beatrice Company sold an equipment with a remaining life of 20 years and immediately lease it back for a period of 5 years. Below are the relevant data:· Sale price at above fair value: P20,000,000· Fair value of building: 18,000,000· Carrying amount of building: 10,800,000· Annual rental payable at the end of each year: 1,500,000· Implicit rate: 12%PV factor for an ordinary annuity at 12% for five periods is 3.60. How much shall the buyer-lessor recognize as gross rental income and depreciation of the building, respectively? a. 555,556 ; 900,000 b. 944,444 ; 900,000 c. 555,556 ; 1,000,000 d. 944,444 ; 3,600,000

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