LS Inc has to acquire new market data and quotation system for its new home office. The system may display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment they can borrow a loan at a interest rate of 10%. Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and for consolidated ;leasing it will cost for $260,000 which include maintenance cost. Federal plus state tax is 25%. To calculate: The present value for owning equipment

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Answer 1

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Chapter 19, Problem 2MC

(1)

Summary Introduction

Case Summary:

LS Inc has to acquire new market data and quotation system for its new home office. The system may display the data onscreen or may save it for later retrieval and system also allow customers to make call and can convey current quotes. Cost of the equipment is $ 1,000,000 and if the company wants to purchase the equipment they can borrow a loan at a interest rate of 10%. Useful life of equipment is 6 years and it comes under 3 years MARCS class or it can purchase a contract of 4 years where $20,000 have to be paid at the beginning of each year and it will be sold after 4 years and for consolidated ;leasing it will cost for $260,000 which include maintenance cost. Federal plus state tax is 25%.

To calculate:

The present value for owning equipment

(2)

Summary Introduction

To calculate:

The discounting factor for the cash flows if asset is purchased.

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