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per tax = 12 % Chapter 27 3. ABC, Inc. needs some new equipment. The equipment...
Problem 4 (25 points) ABC, Inc. needs some new equipment. The equipment would cost $200,000 if...
Problem 4 (25 points) ABC, Inc. needs some new equipment. The equipment would cost $200,000 if purchased and would be depreciated straight-line over 4 years. No salvage is expected. Alternatively, the company can lease the equipment for $42,000 per year. The marginal tax rate is 35%. b) Compute NPV. Assume that the pre-tax cost of debt is 11%. (10 points)
Principal Components is considering whether to lease or purchase some specialized equipment. The capital budgeting analysis...
Principal Components is considering whether to lease or purchase some specialized equipment. The capital budgeting analysis indicating the equipment should be secured already has not been completed. The equipment has a five-year economic and tax life, and the company uses a straight-line depreciation method. The equipment costs $1,000,000 if purchased or it can be leased for five-years at $280,000 per year. The first lease payment is payable in advance. The equipment’s salvage value is estimated to be $100,000. Revenue is...
New Oil Co. is considering replacement of their highly specialised drilling equipment. The new equipment is...
New Oil Co. is considering replacement of their highly specialised drilling equipment. The new equipment is computer assisted and therefore provides New Oil with $2.9 million in annual pre-tax savings. New Oil can purchase the equipment at $9.7 million which will be depreciated straight-line to zero over five years. The local bank is prepared to provide New Oil with $2.9 million loan at an interest rate of 9 percent with annual repayments spread over five years. Alternatively, New Oil can...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools are estimated to have a value of 10% of their original cost after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. The purchase price of the tools is $4,800,000 or the firm can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The firm's tax...
A construction company is considering whether to lease or buy some necessary equipment it needs for...
A construction company is considering whether to lease or buy some necessary equipment it needs for a project that will last the next 3 years. If the firm buys the equipment, it will buy outright for $4.8 million. If it leases the equipment, the firm will make three equal end-of-year lease payments of $2,100,000. The firm’s tax rate is 40% and the firm’s before-tax cost of debt is 10%. Annual maintenance costs associated with ownership are estimated to be $240,000...
Carmichael Cleaners needs a new steam finishing machine that costs $100,000. The company is evaluating whether...
Carmichael Cleaners needs a new steam finishing machine that costs $100,000. The company is evaluating whether it should lease or purchase the machine. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $30,000. A maintenance contract on the equipment would cost $3,000 per year, payable at the...
Hudson Bay Corporation is considering leasing a new equipment. The lease lasts for 5 years. The...
Hudson Bay Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $42,000 per year with the first payment occurring immediately. The equipment would cost $195,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 25%. What is the after-tax...
A Company is considering leasing a new equipment. The lease lasts for 5 years. The lease...
A Company is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $41,000 per year with the first payment occurring immediately. The equipment would cost $192,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 25%. What is the after-tax cash...
Healthsouth Company is considering leasing a new equipment. The lease lasts for 8 years. The lease...
Healthsouth Company is considering leasing a new equipment. The lease lasts for 8 years. The lease calls for 8 payments of $111,000 per year with the first payment occurring immediately. The equipment would cost $724,000 to buy and would be straight-line depreciated to a zero salvage value over 8 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6.5%. The corporate tax rate is 25%. What is the after-tax cash...
Hudson Bay Corporation is considering leasing a new equipment. The lease lasts for 5 years. The...
Hudson Bay Corporation is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $42,000 per year with the first payment occurring immediately. The equipment would cost $195,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 25%. What is the after-tax...
Problem 4 (25 points) ABC, Inc. needs some new equipment. The equipment would cost $200,000 if purchased and would be depreciated straight-line over 4 years. No salvage is expected. Alternatively, the company can lease the equipment for $42,000 per year. The marginal tax rate is 35%. b) Compute NPV. Assume that the pre-tax cost of debt is 11%. (10 points)
New Oil Co. is considering replacement of their highly specialised drilling equipment. The new equipment is computer assisted and therefore provides New Oil with $2.9 million in annual pre-tax savings. New Oil can purchase the equipment at $9.7 million which will be depreciated straight-line to zero over five years. The local bank is prepared to provide New Oil with $2.9 million loan at an interest rate of 9 percent with annual repayments spread over five years. Alternatively, New Oil can...
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