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In: Finance
ABC is considering a leasing arrangement to finance some special manufacturing tools that is needed for...
ABC is considering a leasing arrangement to finance some special manufacturing tools that is needed for production during the next four years. A planned change in the firm’s production technology will make the tool obsolete after 4 years. The firm will depreciate the cost of the tools on a straight-line basis. The firm can borrow $5,000,000, the purchase price, at 12% to buy the tools or make four equal end of the year lease payments of $2,500,000. The firm’s tax rate is 30% and the firm’s before-tax cost of debt is 10%. Annual maintenance costs associated with ownership are estimated at $250,000. Should the firm lease or buy?
Solutions
jeff jeffy answered 2 months agoRelated Solutions
ABC is considering a leasing arrangement to finance some special manufacturing tools that is needed for...
ABC is considering a leasing arrangement to finance some
special manufacturing tools that is needed for production during
the next four years. A planned change in the firm’s production
technology will make the tool obsolete after 4 years. The firm will
depreciate the cost of the tools on a straight-line basis. The firm
can borrow $4,200,000, the purchase price, at 10% to buy the tools
or make four equal end of the year lease payments of $2,250,000.
The firm’s tax...
Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools that it needs...
Redstone Corporation is considering a leasing arrangement to
finance some special manufacturing tools that it needs for
production during the next three years. A planned change in the
firm's production technology will make the tools obsolete after 3
years. The firm will depreciate the cost of the tools on a
straight-line basis. The firm can borrow $4,800,000, the purchase
price, at 10 percent on a simple interest loan to buy the tools, or
it can make three equal end-of-year lease...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3
years, Waldrop Corporation is considering a leasing arrangement.
The tools will be obsolete and worthless after 3 years. The firm
will depreciate the cost of the tools on a straight-line basis over
their 3-year life. It can borrow $4,800,000, the purchase price, at
10% and buy the tools, or it can make 3 equal end-of-year lease
payments of $2,100,000 each and lease them. The loan obtained from
the bank...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3
years, Waldrop Corporation is considering a leasing arrangement.
The tools will be obsolete and worthless after 3 years. The firm
will depreciate the cost of the tools on a straight-line basis over
their 3-year life. It can borrow $4,800,000, the purchase price, at
10% and buy the tools, or it can make 3 equal end-of-year lease
payments of $2,100,000 each and lease them. The loan obtained from
the bank...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3
years, Waldrop Corporation is considering a leasing arrangement.
The tools will be obsolete and worthless after 3 years. The firm
will depreciate the cost of the tools on a straight-line basis over
their 3-year life. It can borrow $4,800,000, the purchase price, at
10% and buy the tools, or it can make 3 equal end-of-year lease
payments of $2,100,000 each and lease them. The loan obtained from
the bank...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3
years, Waldrop Corporation is considering a leasing arrangement.
The tools will be obsolete and worthless after 3 years. The firm
will depreciate the cost of the tools on a straight-line basis over
their 3-year life. It can borrow $4,800,000, the purchase price, at
10% and buy the tools, or it can make 3 equal end-of-year lease
payments of $2,100,000 each and lease them. The loan obtained from
the bank...
The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of...
The profitable Palmer Golf Cart Corp. is considering investing
$300,000 in special tools for some of the plastic golf cart
components. The present golf cart model will continue to be
manufactured and sold for 5 years, after which a new cart design
will be needed, together with a different set of special tools. The
saving in manufacturing costs, owing to the special tools, is
estimated to be $150,000 per year for 5 years. Assume MACRS
depreciation for the special tools...
Assume Bruce Ltd (lessee) has entered into a leasing arrangement with Wayne Ltd (lessor) for some...
Assume Bruce Ltd (lessee) has entered into a leasing arrangement
with Wayne Ltd (lessor) for some equipment. The terms are as
follows:
• The lease is for 4 years and commences on the 1 July 2021.
• As an incentive to enter the lease the lessee agrees to a rent
free period for the first year of the lease.
• There is no initial payment at the commencement of the lease.
There are 3 payments of $45,000 payable on 1...
Some special topics of finance within the framework of introduction to finance are listed below. You...
Some special topics of finance within the framework of
introduction to finance are listed below. You can prepare one of
the topics individually or as a group member of two or three
persons. Please, take care of using numerical examples in your
study. The number of pages of your homework should be between 5 and
10 pages and the sources you use should be specified in the
research in accordance with the research rules
Special topic:
-Financing of multi-national companies
ABC is considering a special order for 20 gold bracelets for a wedding party. The usual...
ABC is considering a special order for 20 gold bracelets for a
wedding party. The usual selling price is $190 and the estimated
unit cost is $149 ($86 in direct materials, $45 in direct labor,
and $25 in overhead). The overhead is fixed except $4 per unit.
Custom engraving for this order will add $2 in materials per
bracelet and require rental of a specific machine for $200 (no
other use). There would be no effect on other sales or...
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