Question

In: Finance

Lego Corporation is planning on replacing all of its copiers and has decided on a model...

Lego Corporation is planning on replacing all of its copiers and has decided on a model manufactured by Xerox. Lego has been offered a five-year lease, including all maintenance, for $1,000 per year for each copier. Lego has a tax rate of 25%, which results in an after-tax cost of leasing of $750 per year. Lego is also considering purchasing the machines and wants to know the annual cost of purchasing so they can compare it to the $750 after-tax cost of leasing. Each copier would have a cost of $2,500 and be depreciated straight-line over five years. A maintenance agreement would run $500 per year. Paper and toner use would be identical, regardless of whether the copiers are leased or purchased and the copier has no salvage value at the end of five years. With Lego’s 25% tax rate and a required rate of return of 9%, calculate the EAA/EAC. Should they purchase or lease?

Solve with excel and show work

Answer Choices:

$3,472.41

-$892.73

$566.88

-$355.78

Solutions

Expert Solution


jeff jeffy answered 5 months ago
Next > < Previous

Related Solutions

Xerox Corporation, known for its copiers and other office machines, has expressed concern that it may...
Xerox Corporation, known for its copiers and other office machines, has expressed concern that it may lose its trademark on the name Xerox. Indeed, it has advertised in various trade journals that Xerox has two “R’s” in it. Why is the trademark in jeopardy, and what is meant when the company says there are two “R’s” in Xerox? Draft a 250 - 300 word discussion explaining the your answer in detail.
Jenkins Company has decided to acquire office equipment (copiers, printers, etc.) that it will use at...
Jenkins Company has decided to acquire office equipment (copiers, printers, etc.) that it will use at its headquarters building for the next five years. The equipment would cost $500,000 to purchase. Alternately, Jenkins could lease the equipment for five years, at an annual cost of $120,000. The lease includes equipment maintenance, which would otherwise be anticipated to cost $40,000 per year. The estimated salvage value of the equipment after five years is $100,000. The five-year MACRS schedule applies for tax...
A corporation has decided to replace an existing asset with a newer model. Two years ago,...
A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $32,000. The new asset will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is ______. Select one:...
A corporation has decided to replace an existing asset with a newer model. Two years ago,...
A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost $30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $45,400. The new asset will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is ______. Select one:...
Hi all, Please list all steps!! Hayden Inc. has a number of copiers that were bought...
Hi all, Please list all steps!! Hayden Inc. has a number of copiers that were bought four years ago for $26,000. Currently maintenance costs $2,600 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $8,600. The machines have a current resale value of $8,600, but at the end of year 2 their value will have fallen to $4,100. By the end of year 6 the machines will...
The XYZ Corporation has decided to open all mail sent to employees who work in the...
The XYZ Corporation has decided to open all mail sent to employees who work in the field. A memorandum was sent to the field staff saying, “Sorry, your mail will be either opened or returned to the sender if it is delivered to your workplace. If the sender is from a healthcare organization, it will be opened to determine if its contents relate to XYZ’s business. If the mail is from any other per- son or place, it will be...
TM company is considering replacing its machine with a new model that sells for $40,000, the...
TM company is considering replacing its machine with a new model that sells for $40,000, the cost of installation is $6,000. Net working capital needed would be $5500. The old machine has been fully depreciated and has a $2500 salvage value. The new machine will be depreciated as a 5-year MACRS asset. Revenues are expected to increase $18,000 per year over the 5-year life of the new machine. At the end of 5 years the new machine is expected to...
TM company is considering replacing its machine with a new model that sells for $40,000, the...
TM company is considering replacing its machine with a new model that sells for $40,000, the cost of installation is $6,000. Net Working Capital needed would be $5,500. The old machine has been fully depreciated and has a $2500 salvage value. The new machine will be depreciated as a 5-year MACRS asset. Revenues are expected to increase $18,000 per year over the 5-year life of the new machine. At the end of 5 years, the new machine is expected to...
TM company is considering replacing its machine with a new model that sells for $40,000, the...
TM company is considering replacing its machine with a new model that sells for $40,000, the cost of installation is $6,000. Net working capital needed would be $5500. The old machine has been fully depreciated and has a $2500 salvage value. The new machine will be depreciated as a 5-year MACRS asset. Revenues are expected to increase $18,000 per year over the 5-year life of the new machine. At the end of 5 years the new machine is expected to...
Suppose the BDJ Corporation has decided in favor of a capital restructuring that involves increasing its...
Suppose the BDJ Corporation has decided in favor of a capital restructuring that involves increasing its existing $80 million in debt to $125 million. The interest rate on the debt is 9 percent and is not expected to change. The firm currently has 10 million shares outstanding, and the price per share is $45. If the restructuring is expected to increase the ROE, what is the minimum level for EBIT that BDJ’s management must be expecting? Ignore taxes for this...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT