Question
In: Finance
You need a particular piece of equipment for your production process. An equipment-leasing company has offered...
You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $ 10 comma 500 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 6.7 %, what should you do?
Year 0 = -$40,800
Year 1: -$2100
Year 2: -$2100
Year 3: -$2100
Year 4: -$2100
Year 5: -$2100
a.) The net present value of the leasing alternative is:
b.) The net present value of the buying alternative is:
Solutions
Expert Solution
ANSWERS ARE ROUNDED. NEED ANY CHANGE, LET ME KNOW
ANSWERS ARE IN NEGATIVE AS THEY ARE OUTFLOWS
jeff jeffy answered 2 years agoRelated Solutions
You need a particular piece of equipment for your production process. An equipment-leasing company has offered...
You need a particular piece of equipment for your production
process. An equipment-leasing company has offered to lease the
equipment to you for
$9,800
per year if you sign a guaranteed
5-year
lease (the lease is paid at the end of each year). The company
would also maintain the equipment for you as part of the lease.
Alternatively, you could buy and maintain the equipment yourself.
The cash flows from doing so are listed below (the equipment has
an economic...
You need a particular piece of equipment for your production process. An equipment-leasing company has offered...
You need a particular piece of equipment for your production
process. An equipment-leasing company has offered to lease the
equipment to you for $10,600 per year if you sign a guaranteed 5
-year lease (the lease is paid at the end of each year). The
company would also maintain the equipment for you as part of the
lease. Alternatively, you could buy and maintain the equipment
yourself. The cash flows from doing so are listed below (the
equipment has an...
You need a particular piece of equipment for your production process. An equipment-leasing company has offered...
You need a particular piece of equipment for your production
process. An equipment-leasing company has offered to lease the
equipment to you for $ 10,100 per year if you sign a guaranteed
5-year lease (the lease is paid at the end of eachyear). The
company would also maintain the equipment for you as part of the
lease. Alternatively, you could buy and maintain the equipment
yourself. The cash flows from doing so are listed below(the
equipment has an economic life...
You need a particular piece of equipment for your production process. An equipment-leasing company has offered...
You need a particular piece of equipment for your production
process. An equipment-leasing company has offered to lease the
equipment to you for $ 10 comma 500 per year if you sign a
guaranteed 5-year lease (the lease is paid at the end of each
year). The company would also maintain the equipment for you as
part of the lease. Alternatively, you could buy and maintain the
equipment yourself. The cash flows from doing so are listed below
(the equipment...
You need a particular piece of equipment for your production process. An equipment-leasing company has offered...
You need a particular piece of equipment for your production
process. An equipment-leasing company has offered to lease the
equipment to you for $ 10,000 per year if you sign a guaranteed
5-year lease (the lease is paid at the end of each year). The
company would also maintain the equipment for you as part of the
lease. Alternatively, you could buy and maintain the equipment
yourself. The cash flows from doing so are listed below (the
equipment has an...
You are considering leasing a piece of equipment. Compute the Present Value of Leasing Costs (after...
You are considering leasing a piece of equipment. Compute the
Present Value of Leasing Costs (after taxes). The
details of the lease are as follows:
Annual Lease Payments = $12,400 (due at Beginning of Year)
Lease Term = 5 Years
Corporate Tax Rate = 30%
Present Value Discount Rate = 7%
a) -54,401
b) -15,253
c) -48,297
d) -35,590
e) -39,149
Praeda Inc. has the choice of buying a piece of equipment or leasing it. The purchase...
Praeda Inc. has the choice of buying a piece of equipment or
leasing it. The purchase cost of the equipment will be $150,000.
For tax purposes, the depreciation on the machine will be full,
straight-line depreciation over 8 years. The machine will be used
for 5 years, regardless of whether it is purchased or leased. The
machine is expected to have a market value of $76,250 at the end of
the 5 years. The lessor will require annual payments of...
A $500,000 piece of production equipment has been purchased by a contract manufacturing company to meet...
A $500,000 piece of production equipment has been purchased by a
contract manufacturing company to meet the specific needs of a
customer. The customer awarded the manufacturing company a 4-year
contract with the possibility of extending the contract for another
4 years. The company plans to use the MACRS depreciation method for
this equipment as a 7-year property for tax purposes. The income
tax rate for the company is 39%, and it expects to have an after
-tax rate of...
Banana Inc. is considering either purchasing or leasing a $600,000 piece of specialized equipment. The equipment...
Banana Inc. is considering either purchasing or leasing a
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of 5 years, belongs in a 30% CCA class, and will have no residual
value. The cost of debt is is 12% for this purchase. A lease on
this equipment for 5 years is priced at $150,000 a year. Banana
Inc.'s corporate tax rate is 34%. What is Banana Inc.'s break-even
lease payment?
a) $182,968
b) 170,802
c) $109,057
d) $133,677...
Describe the differences between leasing a piece of equipment and purchasing it outright and financing the...
Describe the differences between leasing a piece of equipment
and purchasing it outright and financing the purchase with a loan.
Then, compare the lease payments to the loan payments. Next,
compare the tax benefits. What are the differences at the end of
the lease and the loan? Which is better for a corporation, leasing
or purchasing equipment outright? Lastly, identify the factors that
would impact this decision and explain your reasoning with
examples.
(the previous answer did not satisfy me,...
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