A florist can purchase a delivery truck from her local GM dealer for $25,000. The GM...

A florist can purchase a delivery truck from her local GM dealer
for $25,000. The GM dealer will also lease the truck for $6,100
per year over five years. The truck has an expected life of seven
years. The truck is expected to be worth $2,500 (after‐tax) in five
years and the florist has the option to buy it at fair market value
at that time.
If the florist wants to purchase the truck, she must borrow the
money from Simple Loans Bank at a current rate of 10%. The
florist’s tax rate is 34%. For simplicity assume straight‐line
depreciation

(a) Find out the incremental cash flows for the leasing decision with and without salvage value

(b) Which financing option is better (with and without salvage
value)?

(c) What would be the break‐even before‐tax lease rental with
and without salvage value?

Expert Solution

jeff jeffy answered 7 months ago

"A local delivery company has purchased a delivery truck for $22,000. The truck will be depreciated...

"A local delivery company has purchased a delivery truck for $22,000. The truck will be depreciated under MACRS as a five-year property. The trucks market value (salvage value) is expected to decrease by $2,000 per year. It is expected that the purchase of the truck will increase its revenue by $11,000 annually. The O&M costs are expected to be $4,800 per year. The firm is in the 40% tax bracket, and its MARR is 13.7%. If the company plans to...

"A local delivery company has purchased a delivery truck for $19,000. The truck will be depreciated...

"A local delivery company has purchased a delivery truck for $19,000. The truck will be depreciated under MACRS as a five-year property. The trucks market value (salvage value) is expected to decrease by $2,100 per year. It is expected that the purchase of the truck will increase its revenue by $11,000 annually. The O&M costs are expected to be $3,800 per year. The firm is in the 40% tax bracket, and its MARR is 15.3%. If the company plans to...

Brock Florist Company buys a new delivery truck for $30,000. It is classified as a light-duty...

Brock Florist Company buys a new delivery truck for $30,000. It is classified as a light-duty truck. the tax rate is 0.2 a. Calculate the depreciation schedule using a five-year life and MACRS depreciation. b. Calculate the remaining book value at the end of year 4 and the termination value (aka. cost recovery or after tax salvage value) for the delivery truck if the truck can be sold at the end of year 4 for$4,000. a. Year 1: Year 2:...

Brock Florist Company buys a new delivery truck for $29,000. It is classified as a light-duty...

Brock Florist Company buys a new delivery truck for $29,000. It is classified as a light-duty truck. Brock is in a 30% tax bracket and has a cost of capital of 8%. Assume that Brock will sell its delivery truck after three years of service for $15,000. a. Calculate the NPV of the equipment purchase using a five-year life with straight-line depreciation to zero salvage. b. Calculate the NPV of the equipment purchase using a five-year life and MACRS depreciation....

Brock Florist Company buys a new delivery truck for $28,000. It is classified as a light-duty...

Brock Florist Company buys a new delivery truck for $28,000. It is classified as a light-duty truck. the tax rate is 0.25 a. Calculate the depreciation schedule using a five-year life and MACRS depreciation. b. Calculate the remaining book value at the end of year 4 and the termination value (aka. cost recovery or after tax salvage value) for the delivery truck if the truck can be sold at the end of year 4 for$4 comma 0004,000. a. Calculate the...

Brock Florist Company bought a new delivery truck for $29,000. It was classified as a light-duty...

Brock Florist Company bought a new delivery truck for $29,000. It was classified as a light-duty truck. The company sold its delivery truck after three years of service. If a five-year life and MACRS, LOADING... , was used for the depreciation schedule, what is the after-tax cash flow from the sale of the truck (use a 40% taxrate) if a. the sales price was $16,000? b. the sales price was $10,000? c. the sales price was $1,000? Year 3-Year 5-Year ...

Laura wants to buy a delivery truck. The truck costs $114,000 , and will allow her...

Laura wants to buy a delivery truck. The truck costs $114,000 , and will allow her to increase her after tax profits by $17,000 per year for the next 10 years. She will borrow 99% of the cost of the truck for 10 years, at an interest rate of 6%. Laura’s unlevered cost of capital is 15% and her tax rate is 22%. The loan includes a $2,000 application fee. What is the NPV of buying the truck on these...

Laura wants to buy a delivery truck. The truck costs $132,000 , and will allow her...

Laura wants to buy a delivery truck. The truck costs $132,000 , and will allow her to increase her after tax profits by $24,000 per year for the next 10 years. She will borrow 80% of the cost of the truck for 10 years, at an interest rate of 6%. Laura’s unlevered cost of capital is 17% and her tax rate is 34%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on these...

TJ is buying a truck and he will finance it with a loan from the dealer...

TJ is buying a truck and he will finance it with a loan from the dealer that requires monthly payments of $356 for the next 60 months. His loan payments are described by which one of the following terms? Group of answer choices A-Perpetuity B-Present value C-Future value D-Annuity Lump sum

Your team asks VTEPS, Inc. to purchase a light duty delivery truck for $15,000. It is...

Your team asks VTEPS, Inc. to purchase a light duty delivery truck for $15,000. It is anticipated that the purchase of the truck will increase revenue by $10,000 annually, but have operating expenses of $3,000 per year. If your teams plans to sell the truck after two years, what is the minimum that your team can sell the truck for (i.e., MV) after 2 years in order for this to be profitable for VTEPS, Inc.?And what is the maximum that...

Question