Question

In: Finance

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 is a 3-year simple interest loan, with interest paid at the end of the year. The firm's tax rate is 25%. Annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases. What is the net advantage to leasing (NAL), in thousands? (Suggestion: Delete 3 zeros from dollars and work in thousands.)

Solutions

Expert Solution

­SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

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...
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...
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...
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...
ABC Corporation needs to purchase 225,000 boxes of needles per year to support its manufacturing operation over the next 7 years.
ABC Corporation needs to purchase 225,000 boxes of needles per year to support its manufacturing operation over the next 7 years. You have decided to bid on the contract. It will cost you $1,230,000 to install the equipment needed for starting production. This equipment will be depreciated using straight-line method to zero over the project's life, and is estimated to have a salvage value of $75,000. You estimate the fixed costs will be $360,000 per year and the variable costs...
"Your company needs a machine for the next 20 years. You are considering two different machines....
"Your company needs a machine for the next 20 years. You are considering two different machines. Machine A Installation cost ($): 2,500,000 Annual O&M costs ($): 77,000 Service life (years): 20 Salvage value ($): 79,000 Annual income taxes ($): 65,000 Machine B Installation cost ($): 1,250,000 Annual O&M costs ($): 107,000 Service life (years): 10 Salvage value ($): 46,000 Annual income taxes ($): 45,000 If your company s MARR is 14%, determine which machine you should buy. Assume that machine...
Compustat Corporation needs $200 million of total financing for the next 5 years. Their capital structure...
Compustat Corporation needs $200 million of total financing for the next 5 years. Their capital structure is currently $10million of preferred stock, $25million of debt, and $45million of common stock. They want to maintain this target capital structure. They have $25million of retained earnings at a cost of 15%.  New equity will cost17 %. They can raise $15 million of 6% debt and another $30 million of 7½% debt. The cost of preferred stock is fixed at 12%. TAX RATE =...
3. Woodland Corporation purchased a printing machine three (3) years ago and is considering replacing it...
3. Woodland Corporation purchased a printing machine three (3) years ago and is considering replacing it with a new one which is faster and easier to operate. The old machine has been depreciated over 3 years using straight line depreciation. Its original installation cost was $15,000. The old machine has been in use for 2 years, and it can be traded in for $3,500. The new machine will be purchased $24,000 and it will also be depreciated over 3 years...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT