Please answer fast i give you upvote. Quartz Corporation is a relatively new firm. Quartz has experienced enough lossesduring its early years to provide it with at least eight years of tax loss carryforwards,so Quartz's effective tax rate is zero. Quartz plans to lease equipment from New LeasingCompany. The term of the lease is five years. The purchase cost of the equipment is$715,000. New Leasing Company is in the 23 percent tax bracket. There are notransaction costs to the lease. Each firm can borrow at 8 percent.a. What is Quartz's reservation price? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)b. What is New Leasing Company's reservation price? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g., 32.16.)Answer is complete but not entirely correct.a. Reservationpriceb. Reservationprice$$183,982.21183,749.95 X

a.Since the lessee has an effective tax rate of zero, there is no depreciation tax shield foregone.…

Answered: Quartz Corporation is a relatively new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 11P

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The Safety Razor Company has a large tax-loss carry-forward and does not expect to pay taxes for another 10 years. The company is therefore proposing to lease $110,000 of new machinery. The lease terms consist of 7 equal lease payments prepaid annually. The lessor will take CCA on the machinery at a 30% rate and the pool will never close. The first CCA tax deduction is assumed to occur at the end of the first year. There is no salvage value at the end of the machinery’s economic life. The tax rate is 35%,and the rate of interest is 11%. Wilbur Occam, the president of Safety Razor, wants to know the minimum lease payment that the lessor is likely to accept. (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) The minimum lease payment$
Quartz Corporation is a relatively new firm. Quartz has experienced enough losses during its early years to provide it with at least eight years of tax loss carryforwards, so Quartz’s effective tax rate is zero. Quartz plans to lease equipment from New Leasing Company. The term of the lease is four years. The purchase cost of the equipment is $925,000. New Leasing Company is in the 22 percent tax bracket. There are no transaction costs to the lease. Each firm can borrow at 7 percent. a. What is Quartz’s reservation price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is New Leasing Company’s reservation price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The returns of the least and of the purchase are as follows:Lease Annual end-of-year lease payments of $25,200 are required over the 3-year life of the lease. 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 $5,000 at termination of the lease. Purchase The research equipment, costing $60,000, can be financed entirely with a 14% loan requiring annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-yar recovery period (33.33%, 44.45%, 14.81%, and 7.41%, respectively). The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the firm. The firm plans to…
ANB Leasing is planning to lease an asset costing $210,000. The lease period will be 6 years. At the end of 6 years, the salvage value is estimated to be $30,000. The asset will be depreciated on a straight-line basis of $30,000 per year over the 6-year period. ANB's marginal income tax rate is 40%, but its average tax rate is only 31.5%. Assuming ANB Leasing requires a 12% after-tax rate of return on the lease, determine the required annual beginning of the year lease payments. a. $31,592 b. $46,120 c. $45,609 d. $52,653
JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The returns of the least and of the purchase are as follows:Lease Annual end-of-year lease payments of $25,200 are required over the 3-year life of the lease. 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 $5,000 at termination of the lease. Purchase The research equipment, costing $60,000, can be financed entirely with a 14% loan requiring annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-yar recovery period (33.33%, 44.45%, 14.81%, and 7.41%, respectively). The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the firm. The firm plans to…
Judgo Corporation is attempting to determine whether it should lease or purchase equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: I Lease there will be annual end-of-year lease payments of $25,200 each year over the 3-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will be able to exercise its option to purchase the asset for $5,000 at termination of the lease. I Purchase The equipment which costs $60,000 can be financed completely with a 14% loan that requires annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-year recovery period. (33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the…
Next Corporation needs a piece of equipment that costs $270 million. Next can either lease the equipment or borrow $270 million from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. Assume that Next’s tax rate is 35% and that the equipment’s depreciation would be $90 million per year. If the company leased the asset on a 3-year lease, the payment would be $105 million at the beginning of each year. If Next borrowed and bought, the bank would charge 12% interest on the loan. In either case, the equipment is worth nothing after 3 years and will be discarded. Should Next lease or buy the equipment? (solve in excel)
A corporation is attempting to determine whether it should lease or purchase equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: Lease there will be annual end-of-year lease payments of $25,200 each year over the 3-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will be able to exercise its option to purchase the asset for $5,000 at termination of the lease. Purchase The equipment which costs $60,000 can be financed completely with a 14% loan that requires annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-year recovery period. (33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the firm.…
Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from Compulease. The lease terms require Nodhead to make 6 annual payments (prepaid) of $58,000. Nodhead pays no tax. Compulease pays tax at 30%. Compulease can depreciate the computer for tax purposes at a CCA rate of 25%, and will close the asset pool at the end of the sixth year. The first CCA tax saving is available in year 0. The computer will have no residual value at the end of year 5. The interest rate is 9%. a. What is the NPV of the lease for Nodhead College? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ b. What is the NPV for Compulease? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ c. What is the overall gain from leasing? (Round your answer to the nearest dollar. Use minus sign to enter loss, if any.) Overall gain (loss)
Judgo Corporation is attempting to determine whether it should lease or purchase equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: Lease there will be annual end-of-year lease payments of $25,200 each year over the 3-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will be able to exercise its option to purchase the asset for $5,000 at termination of the lease. Purchase The equipment which costs $60,000 can be financed completely with a 14% loan that requires annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-year recovery period. (33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the…
Jabba-Dabba-Doo Inc. renovated its warehouses exactly two years ago at a cost of $3.5 million. The renovations were considered leasehold improvements, so the cost was subject to straight-line depreciation for tax purposes. The firm will not need to renovate the warehouses for another three years (from today). Given that the firm’s marginal tax rate is 35% and required return is 12%, what is the present value of the remaining depreciation tax shields on the leasehold improvement? Ignore the half-year rule, and round your answer to the nearest dollar. Select one: a. $588,449 b. $359,629 c. $513,181 d. $630,069 e. $210,303
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.)…

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