Wolfson Corporation has decided to purchase a new machine that costs $4 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four-year loan for $4 million. The repayment schedule is four yearly principal repayments of $1,000,000 and an interest charge of 8 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1,150,000 per year are due at the beginning of each of the four years of the lease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the maximum annual lease Wolfson would be willing to pay? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
Wolfson Corporation has decided to purchase a new machine that costs $4 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a four-year loan for $4 million. The repayment schedule is four yearly principal repayments of $1,000,000 and an interest charge of 8 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1,150,000 per year are due at the beginning of each of the four years of the lease. a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the maximum annual lease Wolfson would be willing to pay? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
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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Transcribed Image Text:Wolfson Corporation has decided to purchase a new machine that costs $4 million. The
machine will be depreciated on a straight-line basis and will be worthless after
four years. The corporate tax rate is 24 percent. The Sur Bank has offered Wolfson a
four-year loan for $4 million. The repayment schedule is four yearly principal repayments
of $1,000,000 and an interest charge of 8 percent on the outstanding balance of the
loan at the beginning of each year. Both principal repayments and interest are due at the
end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson.
Lease payments of $1,150,000 per year are due at the beginning of each of the four
years of the lease.
a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a
minus sign. Do not round intermediate calculations and enter your answer in
dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
b. What is the maximum annual lease Wolfson would be willing to pay? (Do not round
intermediate calculations and enter your answer in dollars, not millions of dollars,
rounded to 2 decimal places, e.g., 1,234,567.89.)
a. NAL
b. Annual lease payment
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