You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,400 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: (the equipment has an economic life of 5 years). If your discount rate is 7.3%, what should you do? The net present value of the leasing alternative is $ The net present value of the buying alternative is $ (Round to the nearest dollar.) (Round to the nearest dollar.) What should you do? (Select from the drop-down menus.) The cost of is less, so you should the equipment.

You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,400 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: (the equipment has an economic life of 5 years). If your discount rate is 7.3%, what should you do? The net present value of the leasing alternative is $ The net present value of the buying alternative is $ (Round to the nearest dollar.) (Round to the nearest dollar.) What should you do? (Select from the drop-down menus.) The cost of is less, so you should the equipment.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 1P: Reynolds Construction (RC) needs a piece of equipment that costs 200. RC can either lease the...

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You need a particular piece of equipment for your production process. An equipment - leasing company has offered to lease the equipment to you for $9 comma 700 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: LOADING... (the equipment has an economic life of 5 years). If your discount rate is 7.2 %, what should you do? \table[[Year 0, Year 1, Year 2, Year 3, Year 4, Year 5], [-$40, 200, $2,100, -$2,100,- $2,100, - $2,100, - $2,100 c Year 0 - $40,200 Year 1 - $2,100 Year 2 - $2,100 Year 3 Year 4 Year 5 - $2,100 - $2,100 - $2,100
You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $9,500 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: (the equipment has an economic life of 5 years). If your discount rate is 6.9%, what should you do? The net present value of the leasing alternative is $ (Round to the nearest dollar.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 - $39,000 Year 1 Year 2 Year 3 - $2,200 - $2,200 - $2,200 Year 4 - $2,200 Year 5 -$2,200 -
You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,100 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed here: (the equipment has an economic life of 5 years). If your discount rate is 6.5%, what should you do? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 -$40,600 Year 1 -$2,100 Year 2 - $2,100 Year 3 Year 4 Year 5 - $2,100 - $2,100 - $2,100 Print Done
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You need a particular piece of equipment for your production process. An equipment - leasing company has offered to lease the equipment to you for $ 9 comma 500 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 6.7%. what should you do? Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 negative $ 40 comma 800 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 negative $ 2 comma 200 Question content area bottom Part 1 The net present value of the leasing alternative is $ enter your response here. (Round to the nearest dollar.)
= You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $10,400 per year if you sign a guaranteed five-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of five years). If your discount rate is 7.1%, what should you do? Year 0 - $40,100 Year 1 - $1,900 Year 2 - $1,900 The net present value of the leasing alternative is $ Year 3 - $1,900 (Round to the nearest dollar.) Year 4 - $1,900 Year 5 - $1,900
1. You are planning on leasing a drying oven for your production line. The oven lease terms involve an initial payment of $1000 when the oven is delivered, an annual payment of $2000 for seven years, and a final recovery payment of $1000 when the leasing company takes the oven back at the end of the lease. Your corporate cost of money is 4% and the leasing company is responsible for all maintenance on the oven. What is the equivalent (NPV) value of this cashflow today? 1.a The oven you are leasing (from question 1), is expected to generate a cost savings of $5000 per year over the older oven you are currently using. What is the equivalent NPV value of the cashflow when these savings are included?
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A case study analysis of leasing business equipment compared to purchasing the same equipment.How do you determine whether you should lease or buy a piece of equipment for your business? Let's assume you're faced with the following lease-or-buy decision:You can purchase a $50,000 piece of equipment by putting 25 percent down and paying off the balance at 10 percent interest with four annual installments of $11,830. The equipment will be used in your business for eight years, after which it can be sold for scrap for $2,500.The alternative is that you can lease the same equipment for eight years at an annual rent of $8,500, the first payment of which is due on delivery. You'll be responsible for the equipment's maintenance costs during the lease.You expect that your combined federal and state income tax rate will be 40 percent for the entire period at issue. You further assume that your cost of capital is 6 percent (the 10 percent financing rate adjusted by your tax rate).Question:Using…
The Olsen Company has decided to acquire a new truck. One alternativeis to lease the truck on a 4-year contract for a lease payment of $10,000 per year, withpayments to be made at the beginning of each year. The lease would include maintenance.Alternatively, Olsen could purchase the truck outright for $40,000, financing with a bankloan for the net purchase price, amortized over a 4-year period at an interest rate of 10%per year, payments to be made at the end of each year. Under the borrow-to-purchasearrangement, Olsen would have to maintain the truck at a cost of $1,000 per year, payableat year-end. The truck falls into the MACRS 3-year class. The applicable MACRS depreciationrates are 33%, 45%, 15%, and 7%. The truck has a salvage value of $10,000, which is theexpected market value after 4 years, at which time Olsen plans to replace the truck regardlessof whether the firm leases the truck or purchases it. Olsen has a federal-plus-state taxrate of 40%.a. What is Olsen’s PV cost of…
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Reynolds Construction (RC) needs a piece of equipment that costs 200. RC can either lease the equipment or borrow 200 from a local bank and buy the equipment. Reynoldss balance sheet prior to the acquisition of the equipment is as follows: a. (1) What is RCs current debt ratio? (2) What would be the companys debt ratio if it purchased the equipment? (3) What would be the debt ratio if the equipment were leased and the lease not capitalized? (4) What would be the debt ratio if the equipment were leased and the lease were capitalized? Assume that the present value of the lease payments is equal to the cost of the equipment. b. Would the companys financial risk be different under the leasing and purchasing alternatives?