A firm wants the use of a machine that costs $135,000. If the firm purchases the equipment, it will depreciate the equipment at the rate of $27,000 a year for four years, at which time the equipment will have a residual value of $27,000. Maintenance will be $2,500 a year. The firm could lease the equipment for four years for an annual lease payment of $32,460. Currently, the firm is in the 40 percent income tax bracket. Determine the firm's cash inflows and outflows from purchasing the equipment and from leasing. Use a minus sign to enter negative values, if any. If the answer is zero, enter "0". Round your answers to the nearest cent. Year 0 1 2 3 4 Net cash flows under leasing $ $ $ $ $ Net cash flows under purchasing $ $ $ $ $ If the firm uses a 14 percent cost of funds to analyze decisions that involve payments over more than a year, should management lease the equipment or purchase it? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. Present value of net cash flows under leasing: $ Present value of net cash flows under purchasing: $ Management should the equipment as the present value of the net cash flows under this option is . If the firm uses a 8 percent cost of funds to analyze decisions that involve payments over more than a year, should management lease the equipment or purchase it? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent. Present value of net cash flows under leasing: $ Present value of net cash flows under purchasing: $ Management should the equipment as the present value of the net cash flows under this option is .

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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Question

A firm wants the use of a machine that costs $135,000. If the firm purchases the equipment, it will depreciate the equipment at the rate of $27,000 a year for four years, at which time the equipment will have a residual value of $27,000. Maintenance will be $2,500 a year. The firm could lease the equipment for four years for an annual lease payment of $32,460. Currently, the firm is in the 40 percent income tax bracket.

Determine the firm's cash inflows and outflows from purchasing the equipment and from leasing. Use a minus sign to enter negative values, if any. If the answer is zero, enter "0". Round your answers to the nearest cent.

Year	0	1	2	3	4
Net cash flows under leasing	$		$		$	$	$
Net cash flows under purchasing	$		$		$	$	$

If the firm uses a 14 percent cost of funds to analyze decisions that involve payments over more than a year, should management lease the equipment or purchase it? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent.

Present value of net cash flows under leasing: $

Present value of net cash flows under purchasing: $

Management should  the equipment as the present value of the net cash flows under this option is  .
If the firm uses a 8 percent cost of funds to analyze decisions that involve payments over more than a year, should management lease the equipment or purchase it? Use Appendix B and Appendix D to answer the question. Use a minus sign to enter negative values, if any. Round your answers to the nearest cent.

Present value of net cash flows under leasing: $

Present value of net cash flows under purchasing: $

Management should  the equipment as the present value of the net cash flows under this option is  .