dont give answer in image format Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,200 desk. Desks last for six years and canbe depreciated immediately. Assume that lease rates for old and new desks are the same and that Acme's pretax administrative costsare $320 per desk at the beginning of each year. The cost of capital is 9% and the tax rate is 21%. Lease payments are made inadvance, that is, at the start of each year. The inflation rate is zero. Suppose a blue-chip company requests a six-year financial lease fora $4,200 desk. The company has just issued five-year notes at an interest rate of 6% per year.What is the break-even rate in this case? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Break-even rate

Net Present Value: The worth of all future cash flows, both positive and negative, discounted to the…

Answered: Acme has branched out to rentals of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 19P

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Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,600 desk. Desks last for six years and can be depreciated immediately. Assume that lease rates for old and new desks are the same and that Acme’s pretax administrative costs are $360 per desk at the beginning of each year. The cost of capital is 9% and the tax rate is 21%. Lease payments are made in advance, that is, at the start of each year. The inflation rate is zero. Suppose a blue-chip company requests a six-year financial lease for a $4,600 desk. The company has just issued five-year notes at an interest rate of 6% per year. What is the break-even rate in this case?
Acme has branched out to rentals of office furniture to start-up companies. Consider a $4,700 desk. Desks last for six years and can be depreciated immediately. Assume that lease rates for old and new desks are the same and that Acme's pretax administrative costs are $370 per desk at the beginning of each year. The cost of capital is 10% and the tax rate is 21%. Lease payments are made in advance. that is, at the start of each year. The inflation rate is zero. Suppose a blue-chip company requests a six-year financial lease for a $4700 desk. The company has just issued five-year notes at an interest rate of 7% per year. What is the break-even rate in this case? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Break-even rate (1,148.62)
a) SkoFin Leasing offers rental of IT-hardware for companies in Poland. Consider a $2.800 Notebook from a famous brand, which lasts for 4 years and can be depreciated immediately. What is the break-even operating lease rate for such a Notebook, before and after tax. No inflation to be considered. SkoFin has pretax administrative costs of $100 per Notebook in each of years 1 to 4. The cost of capital is 6,5 % and the tax rate is 30 %. Lease payments are made in advance, that is, at the start of each year. Please present your solution in an appropriate table, covering the 4-years period plus the necessary calculations.
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.
A firm is considering leasing or buying a mower. The mower costs $1000 and can be depreciated and falls into the MACRS 3 year class (33%; 45%; 15% and 7%). A maintenance contract will be purchased for $200 per year payable at the start of each year for 4 years. The firms tax rate is 30%. The firm expects to sell the mower for $96 at the end of the 3rd year. What is the net sale price when the mower is sold?
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
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.
Northwest Lumber Company needs to expand its facilities. To do so, the firm must acquire a machine costing $200,000. The machine can be leased or purchased. The firm is in the 27% tax bracket, and its after-tax cost of debt is 9%. The terms of the lease and purchase plans are as follows: Lease The leasing arrangement requires end-of-year payments of $59,000 over five years. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $20,000 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 5 under the lease option. Purchase If the firm purchases the machine, its cost of $200,000 will be financed with a five-year, 17% loan requiring equal end-of-year payments of $62,513. The machine will be depreciated under MACRS using a 5-year recovery period. (See LOADING... for the applicable depreciation percentages.)…
In order to build a new warehouse facility, the regional distributor for Valco Multi-position Valves borrowed $1.6 million at 10% per year interest. If the company repaid the loan in a lump sum amount after two years, what was (a) the amount of the payment, and (b) the amount of interest?
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?
A local delivery company has purchased a delivery truck for $15,000. The truck will be depreciated under MACRS is five-year property. The truck's market va lue (or selling price) is expected to be $2,500 less each year. The O&M costs are expected to be $3.000 per year. The firm is in a 40% tax bracket. and its MARR is 15%. Compute the annual-equivalent cost for retaining the truck for a two-year period, which will be(a) $5,527 (b) $5.J75 (c) $5,362 (cl) $5,014
Northwest Lumber Company needs to expand its facilities. To do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 21% tax bracket, and its after-tax cost of debt is 9%. The terms of the lease and purchase plans are as follows: Lease: The leasing arrangement requires beginning-of-year payments of $19,800 over 5 years. All maintenance costs will be paid by the lessor. The lessee will exercise its option to purchase the asset for $24,000 at termination of the lease. Ignore any future tax benefit associated with the purchase of the equipment at the end of year 5 under the lease option. Purchase: If the firm purchases the machine, its cost of $80,000 will be financed with a 14% loan amortised over 5-year period. The machine will be depreciated under MACRS using a 5-year recovery period. The firm will pay $2,000 per year at the beginning of the year for a service contract that covers all maintenance costs. The…

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