Suppose Proctor? & Gamble? (P&G) is considering purchasing $14 million in new manufacturing equipment. If it...

Suppose Proctor? & Gamble? (P&G) is considering purchasing $14 million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it for tax purposes on a? straight-line basis over five? years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $1.00 million per? year, paid in each of years 1 through 5. It can also lease the equipment under a true tax lease for $3.4 million per year for the five? years, in which case the lessor will provide necessary maintenance. Assume? P&G's tax rate is 40% and its borrowing cost is 6.5%.

a. What is the NPV associated with leasing the equipment versus financing it with the? lease-equivalent loan?

b. What is the? break-even lease ratelong dash—that is, what lease amount could? P&G pay each year and be indifferent between leasing and financing a? purchase

Expert Solution

SEE THE IMAGES

ANY DOUBTS, FEEL FREE TO ASK

jeff jeffy answered 2 years ago

Suppose Proctor & Gamble (P&G) is considering purchasing $12 million in new manufacturing equipment. If it...

Suppose Proctor & Gamble (P&G) is considering purchasing $12 million in new manufacturing equipment. If it purchases the equipment, it will depreciate it for tax purposes on a straight-line basis over five years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $1.00 million per year, paid in each of years 1 through 5. It can also lease the equipment under a true tax lease for $3.3 million per year for the five...

Suppose Proctor & Gamble (P&G) is considering purchasing $17million in new manufacturing equipment. If it purchases...

Suppose Proctor & Gamble (P&G) is considering purchasing $17million in new manufacturing equipment. If it purchases the equipment, it will depreciate it for tax purposes on a straight-line basis over five years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $1.00 million per year, paid in each of years 1 through 5. It can also lease the equipment under a true tax lease for $ 4.2 million per year for the five...

Question 3 – Leasing Suppose Procter and Gamble (P&G) is considering purchasing $15 million new manufacturing...

Question 3 – Leasing Suppose Procter and Gamble (P&G) is considering purchasing $15 million new manufacturing equipment. If it purchases the equipment, it will depreciate it on a straight-line basis over the five years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $1 million per year. Alternatively, it can lease the equipment for $4.2 million per year for the five years, in which case the lessor will provide necessary maintenance. Assume P&G’s...

(I used proctor and gamble), (P&G) So, analyze the Statement of “Retained Earnings” for this company. Next,...

(I used proctor and gamble), (P&G) So, analyze the Statement of “Retained Earnings” for this company. Next, discuss any additions or subtractions recorded for the period from the perspective of a financial analyst. Be sure to discuss what you found interesting about these additions or subtractions

Suppose Proctor&Gamble (PG) and Johnson&Johnson (JNJ) are simultaneously considering new advertising campaigns. Each firm may choose...

Suppose Proctor&Gamble (PG) and Johnson&Johnson (JNJ) are simultaneously considering new advertising campaigns. Each firm may choose a high, medium or low level of advertising. Below is the profit matrix for the two firms under combinations of each of the three decisions. The first number in the bracket is the JNJ profit, the second number if the PG profit. PG High Medium Low High (1,1) (3, 2) (5, 3) JNJ Medium (2,3) (4, 4) (6, 5) Low (3,5) (5,6) (7,5) a)...

You are working as a cost accountant of Proctor and Gamble company’s detergents manufacturing division. Currently...

You are working as a cost accountant of Proctor and Gamble company’s detergents manufacturing division. Currently the demand of Ariel is 550 units a month. The company is selling one Ariel package at a price of 100. The variable cost of ne unit is 62 and fixed cost is 15000. The company is planning to design a new sales promotional campaign that will cost the company 7000 extra. The company is forecasting that by starting new sales promotional campaign company’s...

P & G India. Proctor and Gambles's affiliate in India, P & G India, procures much...

P & G India. Proctor and Gambles's affiliate in India, P & G India, procures much of its toiletries product line from a Japanese company. Because of the shortage of working capital in India, payment terms by India, payment terms by Indian importers are typically 180 days or longer. P & G India wishes to hedge an 8.5 million Japanese yen payable. Although options are not available against the yen. Additionally, a common practice in India is for companies like...

A company is considering purchasing new equipment. The purchase of the equipment is expected to...

A company is considering purchasing new equipment. The purchase of the equipment is expected to generate after tax savings of $12,600 each year for 8 years. The company can borrow money at 6%. Assume annual compounding. Determine the present value of the future cash inflows. Hint: the $12,600 are your annuity payments

Your firm is considering a project that would require purchasing $7.9 million worth of new equipment....

Your firm is considering a project that would require purchasing $7.9 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the? firm's tax rate is 33%?, the appropriate cost of capital is 8 %?, and the equipment can be? depreciated: Please round all answers to 4 decimals. a.? Straight-line over a? ten-year period, with the first deduction starting in one year. b.? Straight-line over a? five-year period, with the first...

Your firm is considering a project that would require purchasing $7.3 million worth of new equipment....

Your firm is considering a project that would require purchasing $7.3 million worth of new equipment. Determine the present value of the depreciation tax shield associated with this equipment if the firm's tax rate is 33%, the appropriate cost of capital is 7%, and the equipment can be depreciated: a. Straight-line over a ten-year period, with the first deduction starting in one year. b. Straight-line over a five-year period, with the first deduction starting in one year. c. Using MACRS...

Question