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. Assume the company has other assets in the same CCA class. Calculate the Net Advantage to Leasing.

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

The lavish carpet manufacturing co. has decided to acquire a new machine that has an economic...

The lavish carpet manufacturing co. has decided to acquire a new machine that has an economic life of 10 years, with no residual value. The machine can be purchased for $75,000 and the supplier is willing to advance $45,000 of the purchase price at 12 percent. The loan is to be repaid in equal instalments over 10 years. Lavish Carpet pays 40 percent corporate income tax and can claim 20 percent capital cost allowances on the purchased asset. It expects...

1) The lavish carpet manufacturing co. has decided to acquire a new machine that has an...

1) The lavish carpet manufacturing co. has decided to acquire a new machine that has an economic life of 10 years, with no residual value. The machine can be purchased for $75,000 and the supplier is willing to advance $45,000 of the purchase price at 12 percent. The loan is to be repaid in equal instalments over 10 years. Lavish Carpet pays 40 percent corporate income tax and can claim 20 percent capital cost allowances on the purchased asset. It...

The Lavish Carpet Manufacturing Co. has decided acquire a new machine that has an economic life...

The Lavish Carpet Manufacturing Co. has decided acquire a new machine that has an economic life of 10 years, with no residual value. The machine can be purchased for $75,000, and the supplier is willing to advance $45,000 of the purchase price at 12 percent. The loan is to be repaid in equal instalments over 10 years. Lavish Carpet pays 40 percent corporate income tax and can claim 20 percent capital cost allowances on the purchased asset. It expects to...

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...

Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...

Mary Products, Inc. has decided to introduce a new product, which can be manufactured by either...

Mary Products, Inc. has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system or a labor-intensive production system. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows: Computer-Assisted Manufacturing System Labor-Intensive Production System Direct Material $6.00 $8.00 Direct Labor (DLH denotes direct-labor hours) 0.7DLH@$20 $14.00 1.3DLH@$15.6 $20.28 Variable mfg. overhead (applied based on DLH) 0.7DLH@$15 $10.50 1.3DLH@$15 $19.50 Fixed mfg....

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...

Subjects