To compare the two alternatives, we need to calculate the PV of both the options.
Buy:
Loan amortization schedule is given below:
Year | Opening Balance | Loan | PMT | Interest | Principal repayment | Closing Balance |
0 | $ 32,00,000.00 | $ 32,00,000.00 | ||||
1 | $ 32,00,000.00 | $ 10,88,000.00 | $ 2,88,000.00 | $ 8,00,000.00 | $ 24,00,000.00 | |
2 | $ 24,00,000.00 | $ 10,16,000.00 | $ 2,16,000.00 | $ 8,00,000.00 | $ 16,00,000.00 | |
3 | $ 16,00,000.00 | $ 9,44,000.00 | $ 1,44,000.00 | $ 8,00,000.00 | $ 8,00,000.00 | |
4 | $ 8,00,000.00 | $ 8,72,000.00 | $ 72,000.00 | $ 8,00,000.00 | $ - | |
$ 39,20,000.00 | $ 7,20,000.00 | $ 32,00,000.00 |
Lease:
PV of an annuity | |
PMT | $ 9,50,000.00 |
r | 9.00% |
n | 4 |
frequency | 1 |
Comparing the two options, the buy option has lower cost, so that should be selected
i hope i can have good explanation about how to find the answers. 14. Lease or...
i hope i can have clearly explanation about how to find the answers. Thanks Lease or Buy Wolfson Corporation has decided to purchase a new machine that costs $3.2 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $3.2 million. The repayment schedule is four yearly principal repayments of $800,000 and an interest charge of...
Lease or Buy Wolfson Corporation has decided to purchase a new machine that costs $4.2 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $4.2 million. The repayment schedule is four yearly principal repayments of $1.05.million and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each...
kind provide solution to this leasing question 1. Wolfson Corporation has decided to purchase a new machine that costs $5.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $5.1 million. The repayment schedule is four yearly principal repayments of $1,275,000 and an interest charge of 9 percent on the outstanding balance of the loan...
Check my work 10 points Wolfson Corporation has decided to purchase a new machine that costs $3.8 million The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 22 percent. The Sur Bank has offered Wolfson a four-year loan for $3.8 million. The repayment schedule is four yearly principal repayments of $950,000 and an interest charge of 6 percent on the outstanding balance of the loan at the beginning...
i hope i can have clearly explanation about how to find the answers. 15. Setting the Lease Price An asset costs $620,000 and will be depreciated in a straight-line manner over its three-year life. It will have no salvage value. The lessor can borrow at 7 percent and the lessee can borrow at 9 percent. The corporate tax rate is 34 percent for both companies. a. How does the fact that the lessor and lessee have different borrowing rates affect...
Lease versus BuyBig Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply:The machinery falls into the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.)Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and...
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...
Lease versus Buy Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: 1. The machinery falls into the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) 2. Under either the lease or the purchase, Big Sky must pay...
Lease versus Buy Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: 1. The machinery falls into the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) 2. Under either the lease or the purchase, Big Sky must pay...
Lease versus Buy Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: 1. The machinery falls into the MACRS 3-year class. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.) 2. Under either the lease or the purchase, Big Sky must pay...