Hull Manufacturing Co. must decide whether to purchase or lease a new piece of equipment. The equipment can be leased for $4,000 a year or purchased for $15,000. The lease includes maintenance and service. The salvage value of the equipment at the end of five years is $5,000. If the equipment is owned, service and maintenance charges (a tax-deductible cost) would be $900 a year. The firm can borrow the entire amount at a rate of 15% if they buy. The tax rate is 50%. Which method of financing would you choose? Use the following capital cost allowance amounts. Year Amount $4,500 3,150 2,205 1,543 1,081 2 3 4
Q: Beemer Construction Company is considering selling excess machinery with a book value of $280,000…
A: Cost of selling=Sale value×Brokerage=$221,000×5%=$11,050
Q: NCC is a company. The company needs a new machine that can either leased or purchased. If it is…
A: In order to compare two different alternatives in regard to the machine, the Net present value of…
Q: Ajax Leasing Services has been approached by Gamma Tools to provide lease financing for a new…
A: The following information is required to compute lease payment:
Q: Keating Co. is considering disposing of equipment with a cost of $74,000 and accumulated…
A: Preparation of income statement helps the business entity in determining how much amount of gross…
Q: Thomas Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 21% . The…
A: Net present value is the amount which is left after deducting the discounted cash inflows from the…
Q: Keating Co. is considering disposing of equipment that cost $68,000 and has $47,600 of accumulated…
A: Incremental Analysis: Incremental analysis refers to the analysis of differential revenue that could…
Q: Your company has just signed a three-year nonrenewable contract with the city of New Orleans for…
A: Cost of equipment = $203,000 Contract period = 3 years Selling cost = $65,000 Operating expense =…
Q: BBL Inc. is considering an equipment for its new factory. It can either purchase the equipment for…
A: In the given question we are provided with the information of BBL Inc. With the given information in…
Q: Burlington Construction Company is considering selling excess machinery with a book value of…
A: Income statement includes revenues, expenses and net income or loss for the company.
Q: A contractor has to choose one of the following alternatives in performing earthmoving contracts: A.…
A: Capital budgeting is a tool or technique that helps to analyze the profitability of the project.
Q: A company needs to decide whether to buy or lease new equipment. The equipment can be purchased for…
A: Lease payment means those payments which are paid for the purpose of taking an asset on lease. These…
Q: Ajman LLC is planning to purchase a machinery for OR.85,000. The useful life of the machinery is 6…
A: Annual total cost: The annual total cost in respect of lease, which is necessary to incurr to…
Q: Avalanche Company manufactures a computer with an estimated economic life of 12 years and leases it…
A: Concept of Lease Accounting
Q: Next Corporation needs a piece of equipment that costs $270 million. Next can either lease the…
A: Solution: Calculation of Present value of the Cash outflow under Purchase Option : Under purchase…
Q: Emaar Builders need to acquire the use of a crane for construction business, and are considering…
A: crane cost = 2,500,000 stright line depreciation and zero salvage time period = 5 lease rent =…
Q: Discuss the nature of this lease in relation to the lessor. This is a Compute the amount of each of…
A:
Q: ur company has just signed a three-year nonrenewable contract with the city of New Orleans for…
A: Uniform annual equivalent concepts are used in heavy equipment used in the construction because the…
Q: Keating Co. is considering disposing of equipment with a cost of $68,000 and accumulated…
A: Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: irm is considering renewing its equipment to meet increased demand for its product. The cost of…
A: Incremental operating cash flows refer to the added cash flow arising out of the operating…
Q: A public agency is obliged to purchase a compressor with an economic life of 10 years or by leasing…
A: Decision making is a process of selecting the best available option among the available…
Q: Kohlers Inc. is considering a leasing arrangement to finance some manufacturing tools that it needs…
A: Given: Borrowed Amount = $4,800,000Purchase Price = 10%Annual Payments = $2,100,000Annual…
Q: Northwest Lumber Company needs to expand its facilities. To do so, the firm must acquire a machine…
A: a. Year Lease payments Tax shield @21% Net after tax Cash outflow 0 $ 19,800 $ -…
Q: ASF wishes to acquire a 100,000 multifacet cutting machine the machine has a useful life of eight…
A: Given, Lease payment = $16,000 Purchase cost = 100000 Tax rate = 35% Loan interest rate = 12%
Q: Comey Products has decided to acquire some new equipment having a $300,000 purchase price. The…
A: in this we have to calculate cost of borrowing after tax.
Q: Carr Corporation is considering new equipment. The equipment can be purchased from an overseas…
A: Differential Analysis: Differential analysis refers to the analysis of differential revenue that…
Q: Super Sonics Entertainment is considering buying a machine that costs $445,000. The machine will be…
A: NAL or net advantage of lease is simply the benefit of lease over buying optionz it is given by NAL…
Q: Intel Inc is looking to acquire a new equipment for a project that will last for eight years. The…
A: Explanation to lease or buy option : In the process of evaluating a lease or a buy decision, the…
Q: Mowbot Company is evaluating the production of a new part. It would require the acquisition of a…
A: Introduction Lease or buy decision Given that Acquisition cost of CNC is $375,000, machine resale…
Q: Emerson Processing borrowed $900,000 for in- stalling energy-efficient lighting and safety equipment…
A: Simple interest is based on the principal amount of a loan or the initial deposit in a savings…
Q: A construction company can purchase a used backhoe for $90,000 and spend $450 per day in operating…
A: Initial cost of alternative 1 = $90,000 Operating cost of alternative 1 = $450 per day Operating…
Q: Burlington Construction Company is considering selling excess machinery with a book value of…
A: Brokerage commission = Sales value x 6% = $90000 x 6% = $5,400
Q: Burlington Construction Company is considering selling excess machinery with a book value of…
A: Brokerage commission on sale=Sale value×Commission=$274,300×5%=$13,715
Q: Keating Co. is considering disposing of equipment with a cost of $66,000 and accumulated…
A: A lease is an agreement delineating the terms under which one party consents to lease property…
Q: Northwest Lumber Company needs to expand its facilities. To do so, the firm must acquire a machine…
A: (a) Formulation: computation:
Q: XYZ Builders Ltd needs to acquire the use of a crane for their construction business and are…
A: A lease is a contract outlining the terms under which one party agrees to rent property owned by…
Q: Canada M. manufactures special equipment with an estimated economic life of 12 years and leases it…
A: There is two type of lease 1. Operating lease 2. Finance lease/capital lease 1. Operating lease:-…
Q: The equipment, which manufactures Easter baskets, costs $74,000 and can be leased over seven years…
A: Lease Payment While taking the decision of purchase of assets to the business whether it is…
Q: COL Inc. can either purchase an equipment for $650,000 or lease it from LEN Inc. by making 12 annual…
A:
Q: Your company has just signed a three-year nonrenewable contract with the city of New Orleans for…
A: The calculations can be done as follows :
Q: Keating
A: Net income is the income of a company, which is the result of all the revenues earned and expenses…
Q: Eclipse Construction Company is considering selling excess machinery with a book value of $280,000…
A: Requirement 1: Prepare the differential analysis of company EC as on April 16.
Q: Comey products has decided to acquire some new equipment having a $200,000 purchase price. The…
A: Given, Cost of new equipment = $200,000 Life = 4 years Firm borrowing rate = 7% Federal plus state…
Step by step
Solved in 4 steps with 3 images
- 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 firms 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?ANB Leasing is planning to lease an asset costing $210,000. The lease period will be 6 years. At the end of 6 years, the salvage value is estimated to be $30,000. The asset will be depreciated on a straight-line basis of $30,000 per year over the 6-year period. ANB's marginal income tax rate is 40%, but its average tax rate is only 31.5%. Assuming ANB Leasing requires a 12% after-tax rate of return on the lease, determine the required annual beginning of the year lease payments. a. $31,592 b. $46,120 c. $45,609 d. $52,653. The Randolph company has decided to acquire a new truck. One alternative is to lease the truck on a 4 year guideline contract for a lease payment of $10,000 per year, with payments to be made at the end of each year. The lease would include maintenance. Alternatively, the company could purchase the truck outright for $40,000 (depreciated under Straight Line Method), financing the purchase by a bank loan for the net purchase price and amortizing the loan over a 4-year period at an interest rate of 10% per year. Under the borrow to purchase arrangement, the company would have to maintain the truck at a cost of $1,000 per year, payable at year end. It has residual value of $10,000, which is the expected market value after 4 years, when the company plans to replace the truck irrespective of whether it leases or buys. The tax rate is 40%. So what is the company's PV cost of leasing? What is the company's PV cost of owning? Should the truck be leased or purchased?
- BBL 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.Big Sky Mining Company must install $1.5 million of new machinery in its Nevadamine. It can obtain a bank loan for 100% of the purchase price, or it can lease themachinery. 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, propertytaxes, 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 onlyinterest 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, andthe 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?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. What is the cost of owning? What is the cost of leasing? What is the NAL of the lease?
- The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $320,000. Of this amount, $260,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000. The depreciated assets will have zero resale value. Use Table 12-12. The contract will require an additional investment of $59,000 in working capital at the beginning of the first year and, of this amount, $39,000 will be returned to the Spartan Technology Company after six years. The investment will produce $91,000 in income before depreciation and taxes for each of the six years. The corporation is in a 25 percent tax bracket and has a 8 percent cost of capital. a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value b. Should…The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $320,000. Of this amount, $260,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000. The depreciated assets will have zero resale value. Use Table 12-12. The contract will require an additional investment of $59,000 in working capital at the beginning of the first year and, of this amount, $39,000 will be returned to the Spartan Technology Company after six years. The investment will produce $91,000 in income before depreciation and taxes for each of the six years. The corporation is in a 25 percent tax bracket and has a 8 percent cost of capital. a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.) X Answer is complete but…Comey Products has decided to acquire some new equipment having a $220,000 purchase price. The equipment will last four years and is in the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are 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? Do not round intermediate calculations. Round your answer to the nearest dollar.
- Thomas Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 21% . The company expects to use the equipment for 4 years, with no expected salvage value. The purchase price is $2 million and MACRS depreciation, 3-year class, will apply. If the company enters into a 4-year lease, the lease payment is $460,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 11% . a. Calculate the cost of purchasing the equipment with debt.b.Calculate the cost of leasing the equipment.C.Calculate the net advantage to leasing. Should the company purchase or lease the equipmentA contractor can buy dump trucks for ₱ 800,000 each or rent them for ₱ 1,200 per truck per day. The truck has a salvage value of ₱ 100,000 at the end of its useful life of 5 years. The annual cost of maintenance is ₱ 20,000. Using annual cost method and 14% interest rate, determine the number of days per year that a truck must be used to warrant its purchased. Use sinking fund method of depreciation.ASB is considering leasing a new machine. The lease calls for 9 payments of $1,403 per year with the first payment occurring immediately. The machine costs $8,683 to buy. The present value of CCA tax shield is $998. The present value of its salvage value is $496 and the present value of CCA recapture is $61. ASB firm can borrow at a rate of 10%. The corporate tax rate is 30%. What is the NPV of leasing?