Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a partition or shops it for afterward recovery by the company's agents. The framework moreover licenses clients to call up current cites on extremities within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a 6-year valuable time, it is classed as a special-need computer, so it comes under the MACRS three-year lesson. In the event that the framework was obtained, a four-year upkeep agreement can be achieved at a fetched of $20,000 per annum, owing at the starting of per year. The hardware would be marketed after for a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is transforming quickly, the real surplus value is dubious. As an elective to the borrow-and-purchase arrangement, the gear producer educated $ L that Solidified Renting would be ready to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 %. To determine: The outcome would increase ambiguity about the extra value have on L’s lease-versus-buy choice.

Question

$1.35 Million for the below question is incorrect, Machine A is $1.81 and Machine B is $0.46 Million. The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $8 million but realizes after-tax inflows of $4.5 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $17 million and realizes after-tax inflows of $4 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 13%. Using the replacement chain approach to project analysis, by how much would the value of the company increase if it accepted the better machine? Round your answer to two decimal places. 1.) $1.35 million

Answer 1

Question

Chapter 19, Problem 5MC

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a partition or shops it for afterward recovery by the company's agents. The framework moreover licenses clients to call up current cites on extremities within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a 6-year valuable time, it is classed as a special-need computer, so it comes under the MACRS three-year lesson. In the event that the framework was obtained, a four-year upkeep agreement can be achieved at a fetched of $20,000 per annum, owing at the starting of per year. The hardware would be marketed after for a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is transforming quickly, the real surplus value is dubious. As an elective to the borrow-and-purchase arrangement, the gear producer educated $ L that Solidified Renting would be ready to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 %.

To determine: The outcome would increase ambiguity about the extra value have on L’s lease-versus-buy choice.

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