EBK PEARSON ETEXT PRINCIPLES OF MANAGER
15th Edition
ISBN: 9780136846901
Author: SMART
Publisher: VST
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Chapter 17, Problem 17.1P
Summary Introduction
To determine:
Tax benefit and the After tax cash outflows of the firm.
Introduction:
The leasing is a financing technique which is available in the economy which allows the firm to obtain the use of certain fixed assets by making the periodic as well as contractual payments which are tax deductable.
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Ajax Capital has determined that the amount to be amortized on an extruder is $540,000. What annual lease payment must Ajax (lessor) require from the lessee if the required rate of return is 16%? Assume that the lease payments will be made at the beginning of each of the 7 years of the lease agreement and that the marginal tax rate is 40%.
a.
$222,827
b.
$288,140
c.
$115,256
d.
$192,093
3. the information below relates to a sales type lease in which lease payments are
made semiannually at the beginning of each period
Lease term
Lessor's desired rate of return
Lesse's incremental borrowing rate
Current fair market value of leased asset
5 years
12% per year
10% per year
$600,000
Based on the information above, calculate the amount of the semi-annual payment as
determined by the lessor.
A) Compute the present value of operating lease obligations using an 8% discount rate for JarirInc. and Extra Inc. as of January 31, 2009. Assume that all cash flows occur at the end of each year. Also assume that the minimum lease payment each year after 2013 equals $360 million per year for three years for Jarir Inc. and $333.5 million for four years for Extra Inc.. (This payment scheduling assumption can be obtained by assuming that the payment amount for 2013 continues until the aggregate payments after 2013 have been made, rounding the number of years upward, and then assuming level payments for that number of years. For Jarir Inc.: $1,080/$386 = 2.8 years. Rounding up to three years creates a three-year annuity of $1,080/3 years = $360 million per year.
B) Compute each of the following ratios for Jarir, Inc. and Extra Inc. as of January 31, 2009, using the amounts originally reported in their balance sheets for the year.(1) Liabilities to Assets Ratio = Total Liabilities/Total…
Chapter 17 Solutions
EBK PEARSON ETEXT PRINCIPLES OF MANAGER
Ch. 17.1 - Prob. 17.1RQCh. 17.2 - What is leasing? Define, compare, and contrast...Ch. 17.2 - Describe the four basic steps involved in the...Ch. 17.2 - What type of lease must be treated as a...Ch. 17.2 - Prob. 17.5RQCh. 17.3 - What is the conversion feature? What is a...Ch. 17.3 - When the market price of the stock rises above the...Ch. 17.3 - Define the straight bond value, conversion (or...Ch. 17.4 - What are stock purchase warrants? What are the...Ch. 17.4 - Prob. 17.10RQ
Ch. 17.4 - Prob. 17.11RQCh. 17.5 - Prob. 17.12RQCh. 17.5 - How can the firm use currency options to hedge...Ch. 17 - N and M Corp, is considering leasing a new machine...Ch. 17 - During the past 2 years Meacham Industries issued...Ch. 17 - Newcomb Company has a bond outstanding with a...Ch. 17 - Crystal Cafes recently sold a 1,000-par-value, 1...Ch. 17 - A 6-month call option on 100 shares of SRS Corp...Ch. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Loan payments and interest Schuyler Company wishes...Ch. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Lease-versus-purchase decision Joanna Browne is...Ch. 17 - Capitalized lease values Given the lease payments,...Ch. 17 - Conversion price Calculate the conversion price...Ch. 17 - Conversion ratio What is the conversion ratio for...Ch. 17 - Conversion (or stock) value What is the conversion...Ch. 17 - Conversion (or stock) value Find the conversion...Ch. 17 - Straight bond value Calculate the straight bond...Ch. 17 - Determining values: Convertible bond Eastern Clock...Ch. 17 - Determining values: Convertible bond Craigs Cake...Ch. 17 - Prob. 17.18PCh. 17 - Prob. 17.23P
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- Assume Fortune Brands, Inc., reports the following footnote relating to its leased facilities in its 2016 10-K report. Future minimum rental payments under noncancelable operating leases as of December 31, 2016 are as follows: (In millions) 2017.. 2018. 2019. 2020. 2021. Remainder. Total minimum rental payments.. Compute the present value of these operating leases using a discount rate of 7% and round the remaining lease life to the nearest whole year. Select one: O O O $ 45.6 33.5 26.9 20.2 15.7 37.3 $179.2 A. $179.2 million B. $140.7 million C. $127.3 million D. $154.9 millionarrow_forwardEach of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. Note: 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) Lease tere (years) Lesson's rate of return (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset Situation 11 Situation 2 Situation 3 Lease Payments Right-of-use Asset/Lease 10 11% 12% Payable $630,000 Situation 2 20 9% 10% Required: as a a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest whole dollar. $1,010,000 5 12% 11% $215,000arrow_forwardDomebo Corporation has entered into a 8 year lease for a piece of equipment. The annual payment under the lease will be $3,200, with payments being made at the beginning of each year. If the discount rate is 14%, the present value of the lease payments is closest to (Ignore income taxes.): Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. (Round your intermediate calculations to 3 decimal places.)arrow_forward
- A firm needs some machinery which it can lease from the manufacturer for a five-year period by making lease payments of $8,000 at the end of each month. If the interest rate for the firm is 8% p.a., with monthly compounding, the present value of the lease payments is closest to: O $394,547. $380,289. $383,300. O $470,547.arrow_forwardThe Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 18,500 Year 2: $ 23,500 Year 3: $ 28,500 Year 4: $ 33,500 An appropriate discount rate is 7 percentage, yielding a present value of $86,637. b-1. If the lease is a finance lease, what will be the initial value of the right-of-use asset? b-2. If the lease is a finance lease, what will be the initial value of the lease liability? b-3. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-4. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1? (Round your answer to the nearest dollar amount.) b-5. If the lease is a finance lease, what will be the amortization expense shown on the income statement at the end of year 1? (Round your answer to…arrow_forward6. You are about to sign a new lease. It requires payments of $650 at the beginning every month for 8 years. a. What is the value of the lease contract if the cost of borrowing is 5.25% compounded semi- annually? Explain solution in words Work SETTING ON I/Y PMT PV N FV CALCULATOR BGN or END P/Y C/Y b. How much interest is paid during this lease? Work Accrued Interestarrow_forward
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