Two independent situations follow. a. Nelson Co. wants to purchase a piece of heavy equipment in 10 years for $488,667. The corporation currently has $300,000 to invest for this purpose. Determine the rate of return (assuming annual compounding) required to accumulate sufficient funds to acquire the equipment at the end of the 10-year period. b.Apple Inc. decides to pay a one-time bonus of $50,670.80 to its vice president, who is expected to retire within the next few years. Apple can invest $40,000 at 3% , compounded annually. How many years will it take to have the $50,670.80 to pay the bonus?

Two independent situations follow. a. Nelson Co. wants to purchase a piece of heavy equipment in 10 years for $488,667. The corporation currently has $300,000 to invest for this purpose. Determine the rate of return (assuming annual compounding) required to accumulate sufficient funds to acquire the equipment at the end of the 10-year period. b.Apple Inc. decides to pay a one-time bonus of $50,670.80 to its vice president, who is expected to retire within the next few years. Apple can invest $40,000 at 3% , compounded annually. How many years will it take to have the $50,670.80 to pay the bonus?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
(Time Value Concepts Applied to Solve Business Problems) Answer the following questions related to Dubois Inc. (a) Dubois Inc. has $600,000 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $80,000 at the end of each year for 12 years, and the other is to receive a single lump-sum payment of $1,900,000 at the end of the 12 years. Which alternative should Dubois select? Assume the interest rate is constantover the entire investment.(b) Dubois Inc. has completed the purchase of new Dell computers. The fair value of the equipment is $824,150. The purchase agreement specifies an immediate down payment of $200,000 and semiannual payments of $76,952 beginning at the end of 6 months for 5 years. What is the interest rate, to the nearest percent, used in discounting this purchase transaction?(c) Dubois Inc. loans money to John Kruk Corporation in the amount of $800,000. Dubois accepts an 8% note due in 7 years with interest payable…
TJ & Parents Inc. has recently decided to go ahead with a new operating system for their business. The cost of the operating system is $3,500,000 and is estimated to have a salvage value of $400,000 in seven years. The CCA rate for the new system is 23% and they will have other assets in this class for at least the next ten years. TJ & Parents Inc. can borrow from the bank at 9% and their current WACC is 12%. They have been offered to lease the new operating system with annual lease payments of $700,000, made at the beginning of each year for seven years. TJ & Parents Inc. marginal tax rate is 26%. Required Should TJ & Parents Inc. buy or lease the new operating system? Show all calculations and round all ending figures to the nearest dollar.
1. Samos Excavating is considering purchasing some new equipment for the company. Due to the expense involved, the equipment company is giving Samos the option of choosing among four different payments plans. 1) $500,000 due immediately in cash 2) $150,000 down payment due immediately; $60,000 per year for 10 years, beginning at the end of the current year 3) $150,000 down payment due immediately; $30,000 per year for 4 years beginning at the end of the current year; $80,000 per year for 8 years beginning at the end of the fourth year after the initial purchase 4) $65,000 due immediately and at the beginning of each of the next 11 years Required: Samos will select the payment plan with the lowest present value. The effective interest rate during the future periods is 10%. Which option should Samos choose?
Hard Hat Company is in the process of purchasing several large pieces of equipment from Machine Corporation. Several financing alternatives have been offered by Machine: 1. Pay $1,050,000 in cash immediately. 2. Pay $441,000 immediately and the remainder in 10 annual installments of $92,000, with the first installment due in one year 3. Make 10 annual Installments of $154,000 with the first payment due immediately. 4. Make one lump-sum payment of $1,710,000 five years from date of purchase Required: Determine the best alternative for Hard Hat, assuming that Hard Hat can borrow funds at a(n) 10% Interest rate Note: Round your finel answers to nearest whole dollar amount. Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Answer is complete but not entirely correct. Option 1 Option 2 Option 3 Option 4 The best allemative for Hard Hat 2 S 5 S Option 2 PV 1,050,000 532.996 153,996 1,061,775
Baird Bros. Construction is considering the purchase of a machine at a cost of $202,000. The machine is expected to generate cash flows of $37,000 per year for 10 years and can be sold at the end of 10 years for $27,000. Interest is at 11%. Assume the machine purchase would be paid for on the first day of year one, but that all other cash flows occur at the end of the year. Ignore income tax considerations. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:a. What is the net present value of the cash flows?b. Determine whether Baird should purchase the machine.
Market Top Investors, Inc., is considering the purchase of a $350,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method, at which time it will be worth $66,000. The computer will replace two office employees whose combined annual salaries are $87,000. The machine will also immediately lower the firm’s required net working capital by $76,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 21 percent. The appropriate discount rate is 9 percent. Calculate the NPV of this project
Market Top Investors, Inc., is considering the purchase of a $345,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method, at which time it will be worth $60,000. The computer will replace two office employees whose combined annual salaries are $86,000. The machine will also immediately lower the firm's required net working capital by $75,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 25 percent. The appropriate discount rate is 8 percent. Calculate the NPV of this project. show work step by step
Market Top Investors, Inc., is considering the purchase of a $365,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method, at which time it will be worth $114,000. The computer will replace two office employees whose combined annual salaries are $95,000. The machine will also immediately lower the firm’s required net working capital by $84,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 24 percent. The appropriate discount rate is 9 percent.    Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Market Top Investors, Inc., is considering the purchase of a $345,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method, at which time it will be worth $96,000. The computer will replace two office employees whose combined annual salaries are $92,000. The machine will also immediately lower the firm’s required net working capital by $81,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 21 percent. The appropriate discount rate is 10 percent.    Calculate the NPV of this project. Is it worthwhile to buy the computer? No Yes
Market Top Investors, Inc., is considering the purchase of a $345,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method, at which time it will be worth $96,000. The computer will replace two office employees whose combined annual salaries are $92,000. The machine will also immediately lower the firm’s required net working capital by $81,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 21 percent. The appropriate discount rate is 10 percent.    Calculate the NPV of this project.