Question
In: Finance
Suppose Clorox can lease a new computer data processing system for $975,000 per year for five...
Suppose Clorox can lease a new computer data processing system for $975,000 per year for five years.? Alternatively, it can purchase the system for $4.25 million. Assume Clorox has a borrowing cost of 7?% and a tax rate of 35?%, and the system will be obsolete at the end of five years.
a. If Clorox will depreciate? (for tax? purposes) the computer equipment on a? straight-line basis over the next five years and if the lease qualifies as a true tax? lease, is it better to finance the purchase of the equipment or to lease? it?
b. Suppose that if Clorox buys the? equipment, it will use accelerated depreciation for tax purposes.? Specifically, the CCA rate will be 40?% and any undepreciated capital cost in year 6 will be taken as a terminal loss. Compare leasing with purchase in this case.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Suppose Clorox can lease a new computer data processing system for $971,000 per year for five...
Suppose Clorox can lease a new computer data processing system
for $971,000 per year for five years.? Alternatively, it can
purchase the system for $4.22 million. Assume Clorox has a
borrowing cost of 6.7 % and a tax rate of 35%?, and the system will
be obsolete at the end of five years.
a. If Clorox will depreciate the computer
equipment on a? straight-line basis over the next five? years, and
if the lease qualifies as a true tax? lease,...
Q3: A computer dealer offers to lease a system to you for $100 per month for...
Q3: A computer dealer offers to lease a system to you for $100
per month for three years. At the end of three years, you have the
option to buy the system for $700. You will pay at the
end of each month. He will sell the same system to
you for $1,200 cash. If the going interest rate is 10%, which is
the better offer?
(I want to solve the method by law and not by using Excel)
Given the following specification for a Web-based order processing system for a computer store. “A new...
Given the following
specification for a Web-based order processing system for a
computer store. “A new user can connect to the company’s web page
and create a new customer profile by providing personal
information. This information will be validated and saved in a
customer information file at the company’ s server. The user is
then provided with a user id and password via an email sent by the
system. Using the provided password, the user can then logon to the...
Nodhead College needs a new computer. It can either buy it for $320,000 or lease it...
Nodhead College needs a new computer. It can either buy it for
$320,000 or lease it from Compulease. The lease terms require
Nodhead to make six annual payments (prepaid) of $76,000. Nodhead
pays no tax. Compulease pays tax at 40%. Compulease can depreciate
the computer for tax purposes straight-line over five years. The
computer will have no residual value at the end of year 5. The
interest rate is 6%.
a. What is the NPV of the lease for Nodhead...
Nodhead College needs a new computer. It can either buy it for $250,000 or lease it...
Nodhead College needs a new computer. It can either buy it for
$250,000 or lease it from Compulease. The lease terms require
Nodhead to make six annual payments (prepaid) of $62,000. Nodhead
pays no tax. Compulease pays tax at 35%. Compulease can depreciate
the computer for tax purposes using 5-year MACRS. The computer will
have no residual value at the end of year 5. The interest rate is
8%.
a. What is the NPV of the lease for Nodhead
College?...
Nodhead College needs a new computer. It can either buy it for $250,000 or lease it...
Nodhead College needs a new computer. It can either buy it for
$250,000 or lease it from Compulease. The lease terms require
Nodhead to make six annual payments (prepaid) of $62,000. Nodhead
pays no tax. Compulease pays tax at 35%. Compulease can depreciate
the computer for tax purposes using 5-year MACRS. The computer will
have no residual value at the end of year 5. The interest rate is
8%.
a. What is the NPV of the lease for Nodhead
College?...
A Plc. needs a new computer that costs £750. It can either buy it or lease...
A
Plc. needs a new computer that costs £750. It can either buy it or
lease it from the computer leasing company. The computer will be
depreciated using a five-year MACRS schedule (see details in the
formula sheet) and will be worth nothing at the end of six years. A
Plc. can lease the computer with the payments of £150 (pre-paid)
for six years. The corporate tax rate is 23 percent and the cost of
capital is 8.5 percent.
Compare...
Suppose Bombardier can lease their fleet of planes from Boeing, for $9,000/year per plane for four...
Suppose Bombardier can lease their fleet of planes from
Boeing, for $9,000/year per plane for four years under an operating
lease. This cost includes maintenance programs, and unlimited
mileages. Alternatively, it can purchase each plane for $40,000.
Assume Bombardier has a borrowing cost of 4% and a tax rate of 35%,
and the plane can be sold for 20% its initial value at the end of
six years.
(i) If Bombardier will depreciate for tax purposes the
fleet of planes...
ABC company is trying to decide whether to lease or buy a new computer-assisted drilling system...
ABC company is trying to decide whether to lease or buy a new
computer-assisted drilling system for its oil exploration business.
Management has decided that it must use the system to stay
competitive. This system will provide $3 million in annual pre-tax
cost savings. The system costs $10 million and will be depreciated
straight-line to zero over five years. The company tax rate is 30%.
The company can borrow at 10%. LLC Company has offered to lease the
computer-assisted drilling...
Brandon Office Service purchased a new computer system on January 1, Year XXX1. Relevant data for...
Brandon Office Service purchased a new computer
system on January 1, Year XXX1. Relevant data for the computer
system is given below:
Purchase price
$36,200
Useful service life in years
5
Salvage value at the end of useful life
$3,400
Required:
a) Calculate the depreciation expense
for each of the 5 years, assuming the use of straight line
depreciation. Also, calculate the net book value of the asset and
the accumulated depreciation expense for this asset at the end of...
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