Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: • The annual maintenance expense for the equipment is expected to be $350. • The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System’s (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. • The corporate tax rate for SBI is 40%. Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: Value Annual tax savings from maintenance will be: $140 Year 1 Year 2 Year 3 Year 4 Tax savings from depreciation $4,666 $6,223 $2,073 $1,037 Net cash flow *****WHAT IS NET CASH FLOW?****

Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: • The annual maintenance expense for the equipment is expected to be $350. • The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System’s (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. • The corporate tax rate for SBI is 40%. Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: Value Annual tax savings from maintenance will be: $140 Year 1 Year 2 Year 3 Year 4 Tax savings from depreciation $4,666 $6,223 $2,073 $1,037 Net cash flow *WHAT IS NET CASH FLOW?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 28P

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	Value
Annual tax savings from maintenance will be:	$140

	Year 1	Year 2	Year 3	Year 4
Tax savings from depreciation	$4,666	$6,223	$2,073	$1,037
Net cash flow

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Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: •The annual maintenance expense for the equipment is expected to be $350.•The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.•The corporate tax rate for SBI is 40%.Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: ValueAnnual tax savings from maintenance will be:$140 Tax savings from depreciation Year 1 Year 2 Year 3 Year 4 $4,666…
Consider the case of Shoe Building Inc. (SBI): Shoe Building Inc. (SBI) is considering the purchase of new manufacturing equipment that will cost $35,000 (including shipping and installation). SBI can take out a four-year, $35,000 loan to pay for the equipment at an interest rate of 8.40%. The loan and purchase agreements will also contain the following provisions: • The annual maintenance expense for the equipment is expected to be $350. The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System's (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. • The corporate tax rate for SBI is 40%. Note: Shoe Building Inc. (SBI) is allowed to take a full-year depreciation tax-saving deduction in the first year. Based on the preceding information, complete the following tables: Value Annual tax savings from maintenance will be: $140 Year 1 Year 2 Year 3 Year 4 Tax savings from depreciation $4,666 $6,223 $2,073…
(a) To upgrade its vehicles, the project Insignia is considering undertaking, the company is exploring the option of obtaining the $10,000,000 required via a loan from its bank for a term of 4 years, at an interest rate of 12% per annum. Monthly payments are expected to be made on the loan. Required: i. Calculate Insignia Corp.'s monthly payment on this loan. ii. Prepare the company's Amortization Schedule for the first three (3) months of this loan, clearly showing the interest and principal payments.
Deep Excavating Inc. is purchasing a bulldozer. The equipment has a price of $106,000. Themanufacturer has offered a payment plan that would allow Deep Excavating to make 10equal annual payments of 17,999 with the first payment due one year after the purchase.The other option is that Deep Excavating can borrow $106,000 from its bank to finance thepurchase at an annual rate of 10%.Required:a) Calculate the interest that Deep Excavating will pay if it chooses the paymentplan of the supplier.b) Calculate the Equal Annual Payments under option of Borrowings from Bank and the total interest to be paid under this option .
Deep Excavating Inc. is purchasing a bulldozer. The equipment has a price of $106,000. Themanufacturer has offered a payment plan that would allow Deep Excavating to make 10equal annual payments of 17,999 with the first payment due one year after the purchase.The other option is that Deep Excavating can borrow $106,000 from its bank to finance thepurchase at an annual rate of 10%.Required:a) Calculate the interest that Deep Excavating will pay if it chooses the paymentplan of the supplier.b) Determine using proper calculations whether Deep Excavating should borrowfrom the bank or use the manufacturer's payment plan to pay for the equipment.
Kotse Automotive is planning to expand its operation by planning to add a machine costing $90,000. The company is facing two possible options which are Option 1 - Lease arrangement which will require the company to pay $15,000 for 5 years and an option to purchase at $20,000 at the end of the lease Option 2 - Purchase the machine thru debt financing which would require the company to pay $20,000 for 5 years. The company is expected to spend $1,000 every year for 5 years for the machines repairs and maintenance. Which of the two options should the company choose if costs of debt is at 9%?
XYZ is evaluating a project that would require the purchase of a piece of equipment for $580,000 today. During year 1, the project is expected to have relevant revenue of $756,000, relevant costs of $199,000, and relevant depreciation of $136,000. XYZ would need to borrow $580,000 today to pay for the equipment and would need to make an interest payment of $30,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $322,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 19.95% but less than 24.42% A rate equal to or greater than 28.03% but less than 37.53% A rate equal to or greater than 37.53% but less than 51.10% A rate equal to or greater than 24.42% but less than 28.03% A rate less than 19.95% or a rate greater than 51.10%
AFX Sdn Bhd is trying to decide whether to accept a business loan or a lease financing facility for an equipment purchase. The equipment cost $60,000 with 3-year economic life, depreciated annually based on MACRS 3-year class with the following rates: Year 1 = 33%; Year 2 = 45%; Year 3 = 15%; Year 4 = 7%. If AFX accepts the business loan option, the 3-year loan will attract an interest rate at 12% interest calculated on a yearly reducing balance. AFX would have to maintain the equipment with an annual maintenance fee of $4,000, payable after services have been rendered. Annual insurance premium is $1,400 on cash before cover basis. AFX is planing to sell the equipment after its useful life for $3,000. Should AFX opt for lease financing, the annual lease rental to be paid in advance is $21,000. You also intend to exercise the option to purchase the equipment for $6,000 at the end of the lease period. Your company’s tax rate is 35%. Company’s after-tax cost of debt is 8%. Which…
XYZ is evaluating a project that would require the purchase of a piece of equipment for $440,000 today. During year 1, the project is expected to have relevant revenue of $786,000, relevant costs of $201,000, and relevant depreciation of $132,000. XYZ would need to borrow $440,000 today to pay for the equipment and would need to make an interest payment of $33,000 to the bank in 1 year. Relevant net income for the project in year 1 is expected to be $337,000. What is the tax rate expected to be in year 1? A rate equal to or greater than 21.96% but less than 26.61% A rate less than 21.96% or a rate greater than 46.34% A rate equal to or greater than 31.02% but less than 38.39% A rate equal to or greater than 38.39% but less than 46.34% A rate equal to or greater than 26.61% but less than 31.02%
The Prescott Welding Company needs toacquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchasethe truck for $45,000, which will be financed by thebank at an interest rate of 12%. The loan must berepaid in four equal installments, payable at the endof each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain thetruck at an annual cost of $1,200, also payable atyear-end. Alternatively, Prescott Welding could leasethe truck under a four-year contract for a lease payment of $12,000 per year. Each annual lease payment must be made at the beginning of each year.The truck would be maintained by the lessor. Thetruck falls into the five-year MACRS classification,and it has a salvage value of $10,000, which is theexpected market value after four years, at which timePrescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Weldinghas a marginal tax rate of 40% and a MARR of…
(Evaluation of Purchase Options) Sosa Excavating Inc. is purchasing a bulldozer. The equipment has a price of $100,000. The manufacturer has offered a payment plan that would allow Sosa to make 10 equal annual payments of $16,274.53, with the first payment due one year after the purchase.Instructions(a) How much total interest will Sosa pay on this payment plan?(b) Sosa could borrow $100,000 from its bank to finance the purchase at an annual rate of 9%. Should Sosa borrow from the bank or use the manufacturer’s payment plan to pay for the equipment?
1. You are planning on leasing a drying oven for your production line. The oven lease terms involve an initial payment of $1000 when the oven is delivered, an annual payment of $2000 for seven years, and a final recovery payment of $1000 when the leasing company takes the oven back at the end of the lease. Your corporate cost of money is 4% and the leasing company is responsible for all maintenance on the oven. What is the equivalent (NPV) value of this cashflow today? 1.a The oven you are leasing (from question 1), is expected to generate a cost savings of $5000 per year over the older oven you are currently using. What is the equivalent NPV value of the cashflow when these savings are included?

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bartleby, a Learneo, Inc. business

•	The annual maintenance expense for the equipment is expected to be $350.
•	The equipment has a four-year depreciable life. The Modified Accelerated Cost Recovery System’s (MACRS) depreciation rates for a three-year asset are 33.33%, 44.45%, 14.81%, and 7.41%, respectively.
•	The corporate tax rate for SBI is 40%.