The Prescott Welding Company needs to acquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchase the truck for $47,000, which will be financed by the bank at an interest rate of 14%. The loan must be repaid in four equal installments, payable at the end of each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain the truck at an annual cost of $1,600, also payable at year-end. Alternatively, Prescott Welding could lease the truck under a four-year contract for a lease payment of $23,000 per year. Each annual lease payment must be made at the beginning of each year. The truck would be maintained by the lessor. The truck falls into the five-year MACRS classification, and it has a salvage value of $11,000, which is the expected market value after four years, at which time Prescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Welding has a marginal tax rate of 35% and a MARR of 15%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i = 14% per year.

The Prescott Welding Company needs to acquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchase the truck for $47,000, which will be financed by the bank at an interest rate of 14%. The loan must be repaid in four equal installments, payable at the end of each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain the truck at an annual cost of $1,600, also payable at year-end. Alternatively, Prescott Welding could lease the truck under a four-year contract for a lease payment of $23,000 per year. Each annual lease payment must be made at the beginning of each year. The truck would be maintained by the lessor. The truck falls into the five-year MACRS classification, and it has a salvage value of $11,000, which is the expected market value after four years, at which time Prescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Welding has a marginal tax rate of 35% and a MARR of 15%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i = 14% per year.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

The current yearly tuition fee for your university is $240,000. If you parents made a lumpsum investment 18 years ago which earned interest of 6.5%, how much did they invest to be able to pay tuition this year?
A company is developing a new electronic product. It expects to spend $38 million on Research and Development and then another $6 million on Manufacturing Engineering. After completing all this, the company expects a cost of $15 per unit to manufacture and plans to build in a profit of $5 per unit into the price. The company needs to recover the cost of R&D plus Manufacturing Engineering over five years through sales of 4 million units over those five years. What will the company need to establish as the sales price for the unit?
You are interested in purchasing a bond from Swiss international. The bond had a 20 year maturity when it was issued, which was 3 years ago. Its face value was $1,000. The bond pays quarter interest at an 0.12 coupon rate. The bond currently trades at a price of $700, what is the YTM
Assume we are selling a product for $2 each. Assume that the variable cost associated with producing and selling the product is 60 cents. Assume that the fixed cost related to the product (the basic costs that are incurred in operating the business even if no product is produced) is $1000. What is the BEP?
A college has been willed $100,000 to establish a permanent scholarship. If funds are invested at 6% and all funds earned are disbursed yearly, what will be the value of the scholarship in the sixth year of operation?
Use a calculator for this exercise.Suppose you obtain a five-year lease for a Porsche and negotiate a selling price of $143,000. The annual interest rate is 8.4%, the residual value is $76,000, and you make a down payment of $7000. Find each of the following. (a) The net capitalized cost$ (b) The money factor (rounded to four decimal places)(c) The average monthly finance charge (rounded to the nearest cent)$ (d) The average monthly depreciation (rounded to the nearest cent)$ (e) The monthly lease payment (rounded to the nearest cent)$
What is the real interest rate if the combined rate is 14% and the inflation is 2.5%?
Compute the annual-equivalence amount for the following cash flow series ati = 10%:
Cindy and Steven are recently married and are both chefs. They have recently graduated from culinary school and are making a starting salary of $15.00 as a sous-chef. They both work 10 hour days, six days a week. Because they are chefs at a mid- level restaurant they live in the downtown core where it is located. The rent on their one bedroom apartment is $1125/month. This includes all utilities. However, they pay an additional $75 for cable and internet. Their joint cell phone bill is $60.00 and they opt not to have a landline to save money. Because they live downtown they have also chosen not to buy a car and spend about $200 a month on public transportation. They eat most meals for free at the restaurant where they work so their grocer bill is only about $200 a month. Do Cindy and Steven earn enough money to cover their expenses
Question 1 Calculate the equivalent annuity (A) for the 6-year cash-low shown below assuming an interest rate of 10%. $10,000 $20,000 $20,000 $20,000 $20,000 $20,000
A company is looking at purchasing a new Zeiss CMM (precision measurement machine). They believe having this machine will allow them to get a new contract. The machine would cost $525,000. It would allow the manufacturer to produce 250 custom engine block heads per day (350 days per year) at a gross profit of $1.95 each, but the company would have to pay tax of 25% on their profit. Assuming you looked at everything on a yearly basis and that the project would go on for 5 years, what is the rate of return (%) on this project? (round to the nearest tenth of a percent) 3.5% 9.5% 7.0% 7.5%
Charlie's Snake Shop has an outstanding 120-day bank loan of $300,000 at an annual interest rate of 3.90%. The company is required to maintain a 15% compensating balance in its chequing account. What is the annual interest cost on the loan? The company has idle cash in the amount of $20,000 that will count toward the compensating balance. Select one: O a. 2.85% Ob. 2.62% O c. 2.14% Od 7.96%