Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Textbook Question
Chapter 19, Problem 2P
Comey Products has decided to acquire some new equipment having a $200,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The
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Comey Products has decided to acquire some new equipment having a $300,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 7% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey’s question? (Hint: Use the shortcut method to find the after-tax cost of the loan payments.) Do not round intermediate calculations. Round your answer to the nearest dollar.
Comey Products has decided to acquire some new equipment having a $240,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The depreciation rates for Year
1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 5% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but
wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question? (Hint:
Use the shortcut method to find the after-tax cost of the loan payments.) Do not round intermediate calculations. Round your answer to the nearest dollar.Comey Products has decided to acquire
some new equipment having a $240,000 purchase price. The equipment will last 4 years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to
0.3333, 0.4445, 0.1481, and 0.0741.) The firm can…
Comey products has decided to acquire some new equipment having a $200,000 purchase price. The equipment will last 4 years and is in the MARCS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) The firm can borrow at a 7% rate and pays a 25% federal-plus-state tax rate. Comey is considering leasing the property but wishes to know the cost of borrowing that it should use when comparing purchasing to leasing and has hired you to answer this question. What is the correct answer to Comey's question?
Chapter 19 Solutions
Financial Management: Theory & Practice
Ch. 19 - Define each of the following terms: a. Lessee;...Ch. 19 - Distinguish between operating leases and financial...Ch. 19 - Prob. 3QCh. 19 - Prob. 4QCh. 19 -
Ch. 19 -
Ch. 19 -
Ch. 19 - Harmeling Paint Ball (HPB) Corporation needs a new...Ch. 19 - Reynolds Construction (RC) needs a piece of...Ch. 19 - Big Sky Mining Company must install 1.5 million of...
Ch. 19 - Prob. 7PCh. 19 -
Start with the partial model in the file Ch19 P08...Ch. 19 - Prob. 1MCCh. 19 - Prob. 2MCCh. 19 - Prob. 3MCCh. 19 - Lewis Securities Inc. has decided to acquire a new...Ch. 19 - Now assume that the equipments residual value...Ch. 19 - The lessee compares the present value of owning...Ch. 19 - (1) Assume that the lease payments were actually...Ch. 19 - Lewis’s management has been considering moving to...Ch. 19 - Prob. 9MC
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- Want Correct answer for this question so please provide itarrow_forwardBBL Inc. is considering an equipment for its new factory. It can either purchase the equipment for $55,200 or lease it from QuickLease with 8 annual lease payments of $8,320 (payable at the beginning of each year). The equipment has CCA rate of 26% and salvage value of $8,160 at the end of year 8. A. BBL has tax rate of 24% and cost of debt of 7.2%. The asset class remains open with positive UCC after the sale of the equipment. Calculate the NPV of leasing for BBL and the maximum annual lease payment it will pay. B. QuickLease has tax rate of 31% and cost of debt of 4.8%. The equipment is the only asset in the asset class for QuickLease. Calculate the NPV of leasing for QuickLease and the minimum annual lease payment it will ассept.arrow_forwardFloopy Co has decided to purchase new equipment. They are in the 38% tax bracket. The desired equipment costs $77,000 and it can be financed entirely with a 12% loan which requires annual end-of-year payments of $32,059 for 3 years. The firm will depreciate the equipment under MACRS using a 3-year recovery period (depreciation is 33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $2,000 per year for a maintenance contract. Calculate the present value of the cash outflows for the purchase alternative. Use these templates below.arrow_forward
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