Keating Co. is considering disposing of equipment with a cost of $74,000 and accumulated depreciation of $51,800. Keating Co. can sell the equipment through a broker for $34,000, less a 8% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $49,000. Keating will incur repair, insurance, and property tax expenses estimated at $9,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is a.$10,464 b.$13,080 c.$6,104 d.$8,720

Keating Co. is considering disposing of equipment with a cost of $74,000 and accumulated depreciation of $51,800. Keating Co. can sell the equipment through a broker for $34,000, less a 8% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $49,000. Keating will incur repair, insurance, and property tax expenses estimated at $9,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is a.$10,464 b.$13,080 c.$6,104 d.$8,720

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

Keating Co. is considering disposing of equipment with a cost of $66,000 and accumulated depreciation of $46,200. Keating Co. can sell the equipment through a broker for $32,000, less a 5% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $45,000. Keating will incur repair, insurance, and property tax expenses estimated at $9,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is
Keating Co. is considering disposing of equipment with a cost of $74,000 and accumulated depreciation of $51,800. Keating Co. can sell the equipment through a broker for $33,000, less a 7% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $49,000. Keating will incur repair, insurance, and property tax expenses estimated at $12,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is Oa. $4,417 Ob. $7,572 Oc. $9,465 Od. $6,310 Previous Next 7:36 PM 12/13/2020 CP DELL
Keating Co. is considering disposing of equipment with a cost of $62,000 and accumulated depreciation of $43,400. Keating Co. can sell the equipment through a broker for $28,000, less a 9% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $47,000. Keating will incur repair, insurance, and property tax expenses estimated at $12,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is Oa. $6,664 Ob. $11,424 Oc. $14,280 Ⓒd. $9,520
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
Pike Industries is considering selling excess machinery with a book value of $150,000 (original cost of $475,000 less accumulated depreciation of $325,000) for $72,500 less a 5% brokerage commission. Alternatively, the machinery can be leased out for a total of $107,500 for five years, after which it is expected to have no residual value. During the period of the lease, Pike Industries' costs of repairs, insurance, and property tax expenses are expected to be $40,000. a. Prepare a differential analysis report for the lease or sell decision. PIKE INDUSTRIES Proposal to Lease or Sell Machinery Differential Analysis Report Differenti revenue from alternatives: Differential cost of alternatives: b. Based on the data presented, which is the most appropriate plan of action?
Moore & Moore (MM) is considering the purchase of a new machine for $50,000, installed. MM will use the MACRS accelerated method to depreciate the machine, which is classified as 5-year property (see the following MACRS table for depreciation rates). MM expects to sell the machine at the end of its 4-year operating life for $10,000. If MM's marginal tax rate is 40%, what will the after-tax cash flow be when it disposes of the machine at the end of Year 4? Annual depreciation rates for years 1 through 6 are respectively as follows: 20%, 32%, 19%, 12%, 11%, 6%. A. $7,656 B. $8,059 C. $8,484 D. $8,930 E. $9,400
Robert Cooper is considering purchasing apiece of business rental property containing storesand offices at a cost of $250,000. Cooper estimatesthat annual disbursements (other than income taxes)will be about $12,000. The property is expected toappreciate at the annual rate of 5%. Cooper expectsto retain the property for 20 years once it is acquired.Then it will be depreciated as a 39-year real-propertyclass (MACRS), assuming that the property will beplaced in service on January 1st. Cooper’s marginaltax rate is 30% and his MARR is 15%. What wouldbe the minimum annual total of rental receipts thatwould make the investment break even?
Thomas Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 21% . The company expects to use the equipment for 4 years, with no expected salvage value. The purchase price is $2 million and MACRS depreciation, 3-year class, will apply. If the company enters into a 4-year lease, the lease payment is $460,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 11% . a. Calculate the cost of purchasing the equipment with debt.b.Calculate the cost of leasing the equipment.C.Calculate the net advantage to leasing. Should the company purchase or lease the equipment
A local delivery company has purchased a delivery truck for $15,000. The truck will be depreciated under MACRS as a five-year property. The truck's market value (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 (d) $5,014
Dave's Demolitions Inc. is considering purchasing $697,400 of equipment for a four- year project. The equipment falls in the five-year MACRS class. At the end of the project the equipment can be sold for an estimated $135,000. If the tax rate is 23 percent, what is the amount of the after-tax salvage value of the equipment?
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.
The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $320,000. Of this amount, $260,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000. The depreciated assets will have zero resale value. Use Table 12-12. The contract will require an additional investment of $59,000 in working capital at the beginning of the first year and, of this amount, $39,000 will be returned to the Spartan Technology Company after six years. The investment will produce $91,000 in income before depreciation and taxes for each of the six years. The corporation is in a 25 percent tax bracket and has a 8 percent cost of capital. a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value b. Should…