To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years.The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,900,000, the purchase price, at 8% and buy the tools, or it can make 3equal end-of-year lease payments of $2,050,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. Thefirm's tax rate is 30%. Annual maintenance costs associated with ownership are estimated at $220,000, but this cost would be borne by the lessor if it leases. What is the netadvantage to leasing (NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work in thousands.)○ $96O $106$118O $130$138

Purchase price = $4,900,000Interest rate = 8%Annual lease payment = $2,050,000Tax rate = 30%Annual…

Answered: To finance some manufacturing tools it…

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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Delamont Transport Company (DTC) is evaluating the merits of leasing versus purchasing a truck with a 4- year life that costs $40,000 and falls into the MACRS 3 - year class. If the firm borrows and buys the truck, the loan rate would be 10%, and the loan would be amortized over the truck's 4-year life, so the interest expense for taxes would decline over time. The loan payments would be made at the end of each year. The truck will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $10,000. If DTC buys the truck, it would purchase a maintenance contract that costs $1,000 per year, payable at the end of each year. The lease terms, which include maintenance, call for a $10,000 lease payment (4 payments total) at the beginning of each year. DTC's tax rate is 40%. What is the net advantage to leasing? ( Note: Assume MACRS rates for Years 1 to 4 are 0.3333, 0.4445, 0.15, and 0.07.). $849 • $896 • $945. $999 •$1,047
ABC can either purchase the machine for $225,000 or lease it from KLease for 12 annual lease payments (paid at the beginning of the year) of $26,000. The machine has CCA rate of 30%. The salvage value is expected to be $12,500. ABC does not have any other asset in the asset class and KLease always has a positive UCC in the asset class. ABC and KLease have cost of debt of 9% and 5%% respectively. KLease pays the statutory corporate tax rate of 25% and ABC only pays 15%. a) Calculate the NPV of leasing for ABC and KLease. b) What are the minimum and maximum annual lease payments that make leasing acceptable to both
Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $90,000. HPB will need it for only 3 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 3 years with $10,000 lease payments at the end of each year. HPB's cost of debt is 10%. Answer the following questions. (Hint: See Table 19-1.) What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ $
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $4200 per year. The equipment costs $25000 and has a useful life of 5 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 5 years and dispose of it for nothing. They can lease it for 5 years with an annual lease payment of $5000. If the after-tax interest rate on secured debt issued by company A is 2% and tax rate is 35%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places)
Mr. XYZ is an entrepreneur who is contemplating to buy a machine to increase the capacity of his manufacturing operations, He consults you for advise on the alternatives of leasing or buying the equipment. If purchased, the straight line depreciation expense will be P 18,700 annually over its life of 5 years. The annual lease payments will amount to P 29,000 payable at the beginning of each of the 5 years. Cost of money is 18%. Tax rate is 35%. There is no salvage value. Present value of P 1 received annually for 5 years at 18% is 3,127. Present value of P1 due in 5 years at 18% is .437. The amount of annual lease payment wherein Mr. XYZ will be indifferent between buying and leasing the machine is?
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $5700 per year. The equipment costs $29000 and has a useful life of 7 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 7 years and dispose of it for nothing. They can lease it for 7 years with an annual lease payment of $8000. If the after-tax interest rate on secured debt issued by company A is 7% and tax rate is 25%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places) Answer: -18233.59
A company is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $58,000 per year with the first payment occurring immediately. The equipment would cost $250,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 24 percent. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0? A)$203,600 B)$204,180 C)$204,760 D)$205,340 E)$205,920 Please answer without AI solution
Your client, Keith Buffalo Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 27 years. Buffalo has an investment cost of $427,700 in the machine, which has a useful life of 27 years and no salvage value at the end of that time. Your client is interested in earning an 10% return on its investment and has agreed to accept 27 equal rental payments at the end of each of the next 27 years.Click here to view factor tablesYou are requested to provide Buffalo with the amount of each of the 27 rental payments that will yield an 10% return on investment. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Amount of each rental payments
Your client, Albert Jackson Leasing Company, is preparing a contract to lease a machine to Souvenirs Corporation for a period of 25 years. Jackson has an investment cost of $427,700 in the machine, which has a useful life of 25 years and no salvage value at the end of that time. Your client is interested in earning an 10% return on its investment and has agreed to accept 25 equal rental payments at the end of each of the next 25 years. Click here to view factor tables. You are requested to provide Jackson with the amount of each of the 25 rental payments that will yield an 10% return on investment. (Round factor values to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, e.g. 458,581) Amount of each rental payments
The cost to purchase the house that Bainters are considering is $195,000, but the Bainters plan to make a $40,000 down payment. The Bainters have been approved for a fixed-rate, 30-year mortgage with a 4.2% annual interest rate for the remaining costs. They want to know how much they would pay on their loan each year as well as how much they would pay on their loan after 5 years, 10 years, 15 years, and 30 years. They also want to determine how much they would pay in interest on their loan when they repay the entire loan. What are the amounts? remember to show or explain your calculations) the total amount paid in loan payments after 1year the total amount paid in loan payments after 5years the total amount paid in loan payments after 10 years the total amount paid in loan payments after 15 years the total amount paid in loan payments after 30 years
a) SkoFin Leasing offers rental of IT-hardware for companies in Poland. Consider a $2.800 Notebook from a famous brand, which lasts for 4 years and can be depreciated immediately. What is the break-even operating lease rate for such a Notebook, before and after tax. No inflation to be considered. SkoFin has pretax administrative costs of $100 per Notebook in each of years 1 to 4. The cost of capital is 6,5 % and the tax rate is 30 %. Lease payments are made in advance, that is, at the start of each year. Please present your solution in an appropriate table, covering the 4-years period plus the necessary calculations.

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