Jeff & Bezos is a fresh groceries delivery company. They have access to borrowingfunds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 21 % taxrate. The company would like to start using high-speed low-altitude drones to delivergrocery purchases directly to residential customers' backyards. Jeff & Bezosis contemplating leasing the drones for a lease term that matches the drones' economiclife. It would lease them from a different company, Nets & Flicks, that currently own therequired number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos isalso contemplating buying them, which would cost the company $5,000,000. If thecompany chooses to buy them, the drones would be losing their economic valuefollowing the straight-line depreciation method during a four year period. The fleet ofdrones, due to their heavy usage, would have no salvage value in four years.Calculate the pre-tax lease payment that would make both Jeff & Bezos and Nets &Flicks indifferent between entering the lease agreement and walking away from it. (Donot round intermediate calculations and round your answer to 2 decimal places, e.g.,32.16. Your answer should be typed as a positive value.)Break-even lease payment

Lease is type of finance of equipments and in this the equipments can be used by payment of the…

Answered: eff & Bezos is a fresh groceries…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 24 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $3.2 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $2,130,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $9.9 million. If the company chooses to buy them, the drones would be…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $1.4 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $1,970,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $8.8 million. If the company chooses to buy…
Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 7% per year. Jeff & Bezos pays income taxes using 24% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that cumently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $5,800,000. If the company chooses to buy them the drories would be losing their economic value following the straight-line depreciation method during a five year period. The fleet of drones, due to their heavy usage, would have no salvage value in five years. Calculate the pre-tax lease payment that would make both Jeff…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 24 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $6,300,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a six year period. The fleet of drones, due to their heavy usage, would have no salvage value in six years. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $1,260,000 for six years from a different company. What should Jeff & Bezos do? Should the company buy or lease the drones? Calculate the net advantage to leasing, a.k.a. NAL, for Jeff & Bezos. (Do not round intermediate…
Lou Lewis, the president of Lewisville Company, has asked you to give him an analysis of the best use of a warehouse the company owns. Lewisville Company is currently leasing the warehouse to another company for $5,800 per month on a year-to-year basis. (Hint: Use the PV function in Excel to calculate, on an after-tax basis, the PV of this stream of monthly rental receipts.) Lewisville Company is seriously considering converting the warehouse into a factory outlet for furniture. The remodeling will cost $140,000 and will be modest because the major attraction will be rock-bottom prices. The remodeling cost will be depreciated over the next 5 years using the double-declining-balance method. (Note: Use the VDB function in Excel to calculate depreciation charges. The advantage of using the VDB, rather than the DDB, function is that there is a (default) option in the former that provides an automatic switch to the straight-line method when it is advantageous to do so.) The inventory and…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 7% per year. Jeff & Bezos pays income taxes using 25 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $6,800,000. The fleet of drones, due to their heavy usage, would have no salvage value in four years. If the company chooses to buy them, the drones would be losing their economic value following the three-year property class under the MACRS depreciation method. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $1,950,000 per year for four years from a different company, Nets & Flicks, that currently owns the required number of the drones. (Do not round Jeff & Bezos' net advantage to leasing, a.k.a. NAL, equals intermediate calculations and round your…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 22 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $7,500,000. The fleet of drones, due to their heavy usage, would have no salvage value in four years. If the company chooses to buy them, the drones would be losing their economic value following the three-year property class under the MACRS depreciation method. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $2,205,000 per year for four years from a different company, Nets & Flicks, that currently owns the required number of the drones. Jeff & Bezos' net advantage to leasing, a.k.a. NAL, equals (Do not round intermediate calculations and round your…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 7% per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Doing so would bring the company pre-tax savings in the amount of $3.1 million each year. The required fleet of drones costs $8.2 million. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a five year period. The fleet of drones, due to their heavy usage, would have no salvage value at the end. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. The estimated annual…
A graphic designer needs a laptop for audio/video editing, and notices that they can elect to pay $3,500 for a Dell XPS laptop, or lease from the manufacturer for monthly payments of $96 each for four years. The designer can borrow at an interest rate of 10% APR compounded monthly. What is the cost of leasing the laptop over buying it outright? O A. Leasing costs $570 more than buying. B. Leasing costs $228 more than buying. OC. Leasing costs $342 more than buying. OD. Leasing costs $285 more than buying.
A graphic designer needs a laptop for audio/video editing, and notices that they can elect to pay $3,200 for a Dell XPS laptop, or lease from the manufacturer for monthly payments of $89 each for four years. The designer can borrow at an interest rate of 12% APR compounded monthly What is the cost of leasing the laptop over buying it outright? A. Leasing costs $144 more than buying. B. Leasing costs $180 more than buying. OC. Leasing costs $216 more than buying. OD. Leasing costs $359 more than buying. CITS
Linksys is considering the development of a wireless home networking appliance, called HomeNet, that will provide both the hardware and the software necessary to run an entire home from any Internet connection. HomeNet's lab will be housed in warehouse space that the company could have otherwise rented out for $190,000 per year during years 1 through 4. The tax rate for Linksys is 20%. How does this opportunity cost affect HomeNet's incremental earnings? HomeNet will experience in incremental earnings of $ per year for the 4 years. (Select from the drop-down menu and round to the nearest dollar.)
The Hub is a business dedicated to providing rentable work spaces for local companies or self-employed individuals. As they begin to expand their business, they need to acquire a set of computers for an in-house computer lab. IBM offers the computers for a single payment of $55,000 due at the end of four years. Dell offers similar computers, but requires four annual payments of $13,000 due at the end of each year. The Hub could borrow the funds at 5%. Using discounted cash flows, determine which computers The Hub should purchase. Select one: a. IBM O b. Del

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