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Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...
Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment has an expected life of 6 years and will be depreciated using 5-year MACRS with rates of .20, .32, .192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation actually takes place over 6 years). There is no actual salvage value. Mass Financing has offered to lease the equipment to Mattel for $148,000 a year for 6 years. Mattel has a cost of equity of 10.8 percent, a pre-tax cost of debt of 6.5 percent, and a marginal tax rate of 25 percent. Should Mattel lease or buy? Mattel should lease because NPV = $21,542.69 Mattel should lease because NPV = $27,630.06 Mattel should buy because NPV = $23,514.35 Mattel should buy because NPV = $28,375.29 Mattel should lease because NPV = $18,589.72
Solutions
Expert Solution
The correct answer is: Mattel should lease because NPV = $27,630.06
Please see the table below. Please be guided by the second column titled “Linkage” to understand the mathematics. The last row highlighted in yellow is your answer. Figures in parenthesis, if any, mean negative values. All financials are in $. Adjacent cells in blue contain the formula in excel I have used to get the final output.
jeff jeffy answered 9 months agoRelated Solutions
Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...
Mattel, Inc. has decided to acquire a new equipment at a cost of
$760,000. The equipment has an expected life of 6 years and will be
depreciated using 5-year MACRS with rates of .20, .32, .192, .1152,
.1152, and .0576 (note that 5-year MACRS depreciation actually
takes place over 6 years). There is no actual salvage value. Mass
Financing has offered to lease the equipment to Mattel for $148,000
a year for 6 years. Mattel has a cost of equity...
Sirius has decided to acquire a new equipment at a cost of $748,000. The equipment has...
Sirius has decided to acquire a new equipment at a cost of
$748,000. The equipment has an expected life of 6 years and will be
depreciated using 5-year MACRS with rates of .20, .32, .192, .1152,
.1152, and .0576 (note that 5-year MACRS depreciation actually
takes place over 6 years). There is no actual salvage value. Travis
Capital has offered to lease the equipment to Sirius for $153,000 a
year for 6 years, with lease payment at the end of...
Comey Products has decided to acquire some new equipment having a $270,000 purchase price. The equipment...
Comey Products has decided to acquire some new equipment having
a $270,000 purchase price. The equipment will last 4 years and is
in 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.)
The firm can borrow at a 10% rate and pays a 25% federal-plus-state
tax rate. Comey is considering leasing the property but wishes to
know the cost of borrowing that it should use when comparing
purchasing...
Comey Products has decided to acquire some new equipment having a $170,000 purchase price. The equipment...
Comey Products has decided to acquire some new equipment
having a $170,000 purchase price. The equipment will last 4 years
and is in 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.)
The firm can borrow at a 5% rate and pays a 25% federal-plus-state
tax rate. Comey is considering leasing the property but wishes to
know the cost of borrowing that it should use when comparing
purchasing...
Comey Products has decided to acquire some new equipment having a $170,000 purchase price. The equipment...
Comey Products has decided to acquire some new equipment
having a $170,000 purchase price. The equipment will last 4 years
and is in 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.)
The firm can borrow at a 5% rate and pays a 25% federal-plus-state
tax rate. Comey is considering leasing the property but wishes to
know the cost of borrowing that it should use when comparing
purchasing...
Duhok Inc. has decided to acquire a new machine that can either be purchased for $4,200,000...
Duhok Inc. has decided to acquire a new machine that can either
be purchased for $4,200,000 and depreciated at a 30% CCA rate or
leased for a 5-year period for $800,000 per year (due at the
beginning of each year). The firm can borrow at 8%, has a 40%
marginal tax rate, and 12% WACC. The new machine has an expected
useful life of 5 years and an expected salvage value of $1,000,000
at the end of the fifth year....
Veritas Inc. has decided to acquire a new Hydraulic Excavator. It has three options. Caterpillar: purchase...
Veritas Inc. has decided to acquire a new Hydraulic Excavator.
It has three options. Caterpillar: purchase cost of $350,324 and
operating costs of $21,964 per year (paid at the end of each year).
John Deere: purchase cost of $285,068 and operating costs of
$20,274 per year (paid at the end of each year). Volvo: purchase
cost of $307,686 and operating costs of $15,767 per year (paid at
the end of each year). Assume that Geek Inc. has a budget of...
Jupiter Inc. has decided to acquire a new weather satellite. After considering several options it has...
Jupiter Inc. has decided to acquire a new weather satellite.
After considering several options it has narrowed its search to two
satellites.
Satellite XPTO: purchase cost of $306251 and operating costs of
$39998 per year (paid at the end of each year).
Satellite XYZ: purchase cost of $205569 and operating costs of
$55860 per year (paid at the end of each year).
Both satellites have a service life of 10 years. Based on the
defender-challenger approach and given that the...
Veritas Inc. has decided to acquire a new Hydraulic Excavator. It has three options. Caterpillar: purchase...
Veritas Inc. has decided to acquire a new Hydraulic Excavator.
It has three options.
Caterpillar: purchase cost of $356609 and operating costs of
$20439 per year (paid at the end of each year).
John Deere: purchase cost of $280828 and operating costs of
$24980 per year (paid at the end of each year).
Volvo: purchase cost of $311464 and operating costs of $18932
per year (paid at the end of each year).
Assume that Geek Inc. has a budget of...
Lewis Securities Inc. has decided to acquire a new market data and quotation system for its...
Lewis Securities Inc. has decided to acquire a new market data
and quotation system for
its Richmond home office. The system receives current market prices
and other information
from several online data services and then either displays the
information on a screen
or stores it for later retrieval by the firm’s brokers. The system
also permits customers to
call up current quotes on terminals in the lobby.
The equipment costs $1,000,000 and, if it were purchased, Lewis
could obtain a...
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