Witten Entertainment is considering buying a machine that costs $561,000. The machinewill be depreciated over four years by the straight-line method and will be worthless atthat time. The company can lease the machine with year-end payments of $174,000. Thecompany can issue bonds at an interest rate of 6 percent. The corporate tax rate is 21percent.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.)NAL

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

Answered: Witten Entertainment is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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Nu-Tek is considering leasing some equipment for 4 years with equal annual lease payments. The equipment would cost $74,000 to buy and would be depreciated straight-line over 4 years to a zero-salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 7.3 percent. The lessee does not expect to owe taxes for several years while the lessor's tax rate is 21 percent. What is the minimum lease payment that will be acceptable to both parties? (Do not round your intermediate calculations. Round only your final answer up to 2 decimal places, if necessary. Note: Your final answer must be in dollars without the $ sign at the beginning)
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WellyWeta workshop is considering buying a machine that costs $545,000. The machine will bedepreciated over five years by the straight-line method and will be worthless at that time. Thecompany can lease the machine with year-end payments of $140,000. The company can issue bondsat an interest rate of 7 percent. If the corporate tax rate is 21 percent, should the company buy orlease?
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WellyWeta workshop is considering buying a machine that costs $545,000. The machine will bedepreciated over five years by the straight-line method and will be worthless at that time. Thecompany can lease the machine with year-end payments of $140,000. The company can issue bondsat an interest rate of 7 percent. If the corporate tax rate is 21 percent, should the company buy orlease? hand write please
Kohers Inc is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3 year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000 but this cost would be borne by the lessor if it leases. What is the net advantage to leasing(NAL), in thousands? (Suggestion:Delete 3 zeros from dollars and work in thousands)
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