Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Textbook Question
Chapter 19, Problem 6P
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply.
- (1) The machinery falls into the MACRS 3-year class.
- (2) Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance.
- (3) The firm’s tax rate is 25%.
- (4) The loan would have an interest rate of 15%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4.
- (5) The lease terms call for $400,000 payments at the end of each of the next 4 years.
- (6) Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of $250,000 at the end of the 4th year.
- a. What is the cost of owning?
- b. What is the cost of leasing?
- c. What is the NAL of the lease?
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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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