Rocky Mountain Bus Tours needs an additional bus for three years. It can lease a bus for $2100 payable at the beginning of each month, or it can buy a similar bus for $120,000, using financing at the rate of 7.5% compounded monthly. The bus's resale value after three years is expected to be $60,000. a. On strictly financial considerations, should the company lease or buy the bus? The company should (Click to select the bus. b.What is the financial advantage in current dollars of the preferred choice? (Round your Intermedlate calculations and answer to the nearest dollar.) The financial advantage

Rocky Mountain Bus Tours needs an additional bus for three years. It can lease a bus for $2100 payable at the beginning of each month, or it can buy a similar bus for $120,000, using financing at the rate of 7.5% compounded monthly. The bus's resale value after three years is expected to be $60,000. a. On strictly financial considerations, should the company lease or buy the bus? The company should (Click to select the bus. b.What is the financial advantage in current dollars of the preferred choice? (Round your Intermedlate calculations and answer to the nearest dollar.) The financial advantage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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2. Rearden Metal needs to order a new blast furnace that will be delivered in one year. The $1,000,000 price for the blast furnace is due in one year when the new furnace is installed. The blast furnace manufacturer offers Rearden's Metal a discount of $50,000 if they pay for the furnace now. If the interest rate is 7%, then the NPV of paying for the furnace now is closest to: A) ($15,421). B) $15,421. C) ($46,729). D) $46,729.
Compare the cost of the following lesing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Select one: a. $2,200 b. $2,000 c. $1,550 d. $1,450
Jeremy Leasing purchases and then leases small aircraft to interested parties. The company is currently determining the required rental for a small aircraft that cost them $600,000. If the lease is for twenty years and annual lease payments are required to be made at the end of each year, what will be the annual rental if Jeremy wants to earn a return of 10%? a. $64,070. b. $70,476. c. $10,476. d. $30,314.
es A firm can lease a truck for 4 years at a cost of $36,000 annually. It can instead buy a truck at a cost of $86,000, with annual maintenance expenses of $16,000. The truck will be sold at the end of 4 years for $26,000. a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 10%? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Equivalent annual cost b. Which is the better option? O Buy ● Lease
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than?
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is $25,000, and its projected residual value at the end of five years is $10,000. Monthly payment $450 Capital cost reduction $1,700 Disposition charge $400 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than Group of answer choices $14, 100. $15,500. $12,900. $400.
K (Cost of short-term financing) The R. Morin Construction Company needs to borrow $100,000 to help finance the cost of a new $140,000 hydraulic crane used in the firm's commercial construction business. The crane will pay for itself in 1 year, and the firm is considering the following alternatives for financing its purchase: Alternative A-The firm's bank has agreed to lend the $100,000 at a rate of 12 percent. Interest would be discounted, and a 16 percent compensating balance would be required. However, the compensating-balance requirement would not be binding on R. Morin because the firm normally maintains a minimum demand deposit (checking account) balance of $25,000 in the bank. Alternative B-The equipment dealer has agreed to finance the equipment with a 1-year loan. The $100,000 loan would require payment of principal and interest totaling $115,560. a. Which alternative should R. Morin select? b. If the bank's compensating-balance requirement were to necessitate idle demand…
3) You are purchasing a car and have the option to pay $25,000 in cash (upfront) OR assume a lease with end of the month payments of $399 for five years. By purchasing, you will receive an estimated residual value (or scrap value) by selling the car for $2,500 at the end of the 5 years. If interest is 2.7% compounded annually, which financing option would you prefer? (16.1 DCF)
13. ABC manufacturing wants to purchase a new machine that is expected to save $12,000 in annual operating and maintenance costs for the next five years. The machine's price is $32,000, and the installation cost is $3500. With a salvage value of $5,000 and an interest rate of 17%, what is the discounted payback period? a. 4 years b. 6 уears с. 5 years d. 3 years
A Services company is projecting that demand for its services will rise considerably the next three years. They can lease additional equipment for $1,600 at the beginning of every quarter for three years. Alternatively, they can purchase the equipment for $22,995 at 8% compounded quarterly. The salvage value of the equipment after three years is expected to be $4,000. 1. What is the present value of each offer? A. Lease: B. Purchase: 2. Which option would you recommend and how much better is that option in today's dollars?
A firm can lease a truck for 5 years at a cost of $39,000 annually. It can instead buy a truck at a cost of $89,000, with annual maintenance expenses of $19,000. The truck will be sold at the end of 5 years for $29,000. a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 12%? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Equivalent annual cost $ 20,317.57 b. Which is the better option? O Buy Lease
Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $90,000. HPB will need it for only 3 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 3 years with $10,000 lease payments at the end of each year. HPB's cost of debt is 10%. Answer the following questions. (Hint: See Table 19-1.) What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ $