VML Industries has need of specialized yarn manufacturing equipment for operations over the next 3 years. The firm could buy the machinery for $95,000 and depreciate it using MACRS. Annual maintenance would be $7500, and it would have a salvage value of $25,000 after 3 years. Another alternative would be to lease the same machine for $45,000 per year on an "all costs" inclusive lease (maintenance costs included in lease payment). These lease payments are due at the beginning of each year. VML Industries uses an after-tax MARR of 18% and a combined tax rate of 28%. Do an after-tax present worth analysis to determine which option is preferred.
VML Industries has need of specialized yarn manufacturing equipment for operations over the next 3 years. The firm could buy the machinery for $95,000 and depreciate it using MACRS. Annual maintenance would be $7500, and it would have a salvage value of $25,000 after 3 years. Another alternative would be to lease the same machine for $45,000 per year on an "all costs" inclusive lease (maintenance costs included in lease payment). These lease payments are due at the beginning of each year. VML Industries uses an after-tax MARR of 18% and a combined tax rate of 28%. Do an after-tax present worth analysis to determine which option is preferred.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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VML Industries has need of specialized yarn manufacturing
equipment for operations over the next 3 years. The firm could buy
the machinery for $95,000 and
maintenance would be $7500, and it would have a salvage value of
$25,000 after 3 years. Another alternative would be to lease the
same machine for $45,000 per year on an “all costs” inclusive lease
(maintenance costs included in lease payment). These lease
payments are due at the beginning of each year. VML Industries
uses an after-tax MARR of 18% and a combined tax rate of 28%. Do
an after-tax present worth analysis to determine which option is
preferred.
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