Wolfson Corporation has decided to purchase a new machine that costs $2.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four- year loan for $2.1 million. The repayment schedule is four yearly principal repayments of $525,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $640,000 per year are due at the beginning of each of the four years of the lease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) a. NAL b. Annual lease payment $ $ -440,763.75 X 491,955.26
Wolfson Corporation has decided to purchase a new machine that costs $2.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four- year loan for $2.1 million. The repayment schedule is four yearly principal repayments of $525,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $640,000 per year are due at the beginning of each of the four years of the lease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) a. NAL b. Annual lease payment $ $ -440,763.75 X 491,955.26
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
Related questions
Question
Transcribed Image Text:Wolfson Corporation has decided to purchase a new machine that costs $2.1 million. The
machine will be depreciated on a straight-line basis and will be worthless after four
years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four-
year loan for $2.1 million. The repayment schedule is four yearly principal repayments of
$525,000 and an interest charge of 9 percent on the outstanding balance of the loan at
the beginning of each year. Both principal repayments and interest are due at the end of
each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease
payments of $640,000 per year are due at the beginning of each of the four years of the
lease.
a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a
minus sign. Do not round intermediate calculations and enter your answer in
dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
b. What is the annual lease payment that will make Wolfson indifferent to whether it
leases the machine or purchases it? (Do not round intermediate calculations and
enter your answer in dollars, not millions of dollars, rounded to 2 decimal places,
e.g., 1,234,567.89.)
a. NAL
b. Annual lease payment
$
$
-440,763.75 x
491,955.26
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