Problem 27-06 MACRS Depreciation and Leasing [LO3]You work for a nuclear research laboratory that is contemplating leasing a diagnosticscanner (leasing is a very common practice with expensive, high-tech equipment). Thescanner costs $5,200,000. Because of radiation contamination, it actually will becompletely valueless in four years. You can lease it for $1,550,000 per year for fouryears. Assume that the tax rate is 24 percent. You can borrow at 8 percent before taxes.Assume that the scanner will be depreciated as three-year property under MACRS. UseTable 10.7.a. What is the NAL of the lease? (A negative answer should be indicated by a minussign. Do not round intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)b. Should you lease or buy?a.b.Answer is complete but not entirely correct.$ -10,374.62 XNALLease

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Problem 27-06 MACRS Depreciation and…

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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Problem 27-06 MACRS Depreciation and Leasing [LO3] You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs $6,300,000. Because of radiation contamination, it actually will be completely valueless in four years. You can lease it for $1,795,000 per year for four years. Assume that the tax rate is 25 percent. You can borrow at 6 percent before taxes. Assume that the scanner will be depreciated as three-year property under MACRS. Use Table 10.7 a. What is the NAL of the lease? (A negative answer should be indicated by a minus. sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Should you lease or buy? a. b. NAL
Problem 21-1 Lease or Buy You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $6,000,000 and would be depreciated straight-line to zero over six years. Because of radiation contamination, it will actually be completely valueless in six years. You can lease it for $1,200,000 per year for six years. Assume that the tax rate is 21 percent. You can borrow at 6 percent before taxes. What is the NAL? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NAL Should you lease or buy? Buy Lease
Item 9 You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $8,300,000, Because of radiation contamination, it will actually be completely valueless in four years. You can lease it for $2,385,000 per year for four years. Assume that the tax rate is 25 percent. You can borrow at 7 percent before taxes. Assume that the scanner will be depreciated as three-year property under the MACRS depreciation. What is the NAL of the lease? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Problem 21-4 Taxes and Leasing Cash Flows You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $6,300,000 and would be depreciated straight-line to zero over six years. Because of radiation contamination, it will actually be completely valueless in six years. You can lease it for $1,260,000 per year for six years. Assume that your company does not contemplate paying taxes for the next several years. You can borrow at 6 percent before taxes. What is the NAL of the lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NAL
Exercise 14-6 (Algo) Simple Rate of Return Method [LO14-6] The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $57,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use is fully depreciated and could be sold now for a salvage value of $24,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.)
Problem 9 A contractor is considering the following three alternatives: a. Purchase a new microcomputer system for $15,000. The system is expected to last 6 years with salvage value of $1,000. b. Lease a new microcomputer system for $3,000 per year, payable in advance. The system should last 6 years. c. Purchase a used microcomputer system for $8,200. It is expected to last 3 with no salvage value. Use a common-multiple-of-lives approach. If MARR of 8% is used, which alternative should be selected using a discounted present worth analysis? If the MARR is 12%, which alternate should be selected? years
8 nts 03:40:49 Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.29 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,651,000 in annual sales, with costs of $629,000. If the tax rate is 23 percent, what is the OCF for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) X Answer is complete but not entirely correct. $ OCF 1,146,333 X
Question 5 The Beautyqueen Company is trying to decide whether to lease or buy a new computer assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $10,000 in annual pretax cost savings. The system costs $680,000 and will be depreciated straight-line to zero over five years. Beautyqueen's tax rate is 23 percent, and the firm can borrow at 9 percent. Lambert Leasing Company has offered to lease the drilling equipment to Beautyqueen for payments of $43,000 per year. Lambert's policy is to require its lessees to make payments at the end of the year. a. What is the NAL for Beautyqueen? b. What is the reservation Payment of Lessor?
QUESTION 7 Massey Enterprises is planning to buy a new machine to decrease the overall cost of production. This machine will cost $50000 and will help to save the company $22000 in operating costs annually. The machine will be fully depreciated using a straight-line depreciation method to a useful life of 4 years. The actual market value of the machine is expected to be zero at the termination of the project. The marginal tax rate for the company is 21 and the discount rate for this project is 11 percent. What is the net present value of this 4-year project?
Question 17 A $65,000 machine with a 7-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $78,000, with a 10-year class life. The new machine will non increase sales, but will decrease operating costs by $13,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?
Exercise 12-6 Simple Rate of Return Method [LO12-6] The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $57,000. The machine would replace an old piece of equipment that costs $15,000 per year to operate. The new machine would cost $7,000 per year to operate. The old machine currently in use could be sold now for a salvage value of $24,000. The new machine would have a useful life of 10 years with no salvage value. Required: 1. What is the annual depreciation expense associated with the new bottling machine? 2. What is the annual incremental net operating income provided by the new bottling machine? 3. What is the amount of the initial investment associated with this project that should be used for calculating the simple rate of return? 4. What is the simple rate of return on the new bottling machine? (Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%.) 1. Depreciation expense 2. Incremental net operating…
Problem 9-16 Project Evaluation (LO2) Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $20 million. The system will last 4 years. Do-It-Right sells a sturdier but more expensive system for $21 million, it will last for 6 years. Both systems entail $2 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm's tax rate is 30%, and the discount rate is 13%. a. What is the equivalent annual cost of investing in the cheap system? Note: Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to 2 decimal places. b. What is the equivalent annual cost of investing in the more expensive system? A Note: Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to…

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