Construction Accounting And Financial Management (4th Edition)
Construction Accounting And Financial Management (4th Edition)
4th Edition
ISBN: 9780135232873
Author: Steven J. Peterson MBA PE
Publisher: PEARSON
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Chapter 15, Problem 35P

How much money needs to be set aside today to purchase a new piece of equipment in three years? The money is expected to earn 5% interest compounded annually, the marginal tax rate is 35%, and the price of the equipment is expected to increase by 2% per year. The present cost of the equipment is $100,000. What effect do taxes have on the amount of money needed?

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Your company wants to purchase a photostat machine which costsRM15,000. It will be obsolete in 5 years. Your options are to borrow the moneyat 10 percent or to lease the machine. If you lease the payment will beRM2,500 per year, payable at the end of each of the next five years. If youpurchase the machine it will depreciate at a straight-line basis. The tax rate is34 percent. Prepare a table and calculate to justify whether you should leaseor buy.
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