Emerson Corp. is trying to decide whether to lease or purchase a piece of equipment needed...

Emerson Corp. is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $505,000 to purchase, and maintenance costs would be $20,300 per year. After five years, Emerson estimates it could sell the equipment for $100,500. If Emerson leases the equipment, it would pay $151,900 each year, which would include all maintenance costs. Emerson’s hurdle rate is 15%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.) a. What is the net present value of the cost of purchasing the equipment?

Solutions

Expert Solution

Ques. Emerson Corp. is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $505,000 to purchase, and maintenance costs would be $20,300 per year. After five years, Emerson estimates it could sell the equipment for $100,500. If Emerson leases the equipment, it would pay $151,900 each year, which would include all maintenance costs. Emerson’s hurdle rate is 15%. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor from the PV tables.) a. What is the net present value of the cost of purchasing the equipment?

Feedback would be appreciated.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Emerson Corp. is trying to decide whether to lease or purchase a piece of equipment needed...

Emerson Corp. is trying to decide whether to lease or purchase a piece of equipment needed for the next five years. The equipment would cost $502,000 to purchase, and maintenance costs would be $20,700 per year. After five years, Emerson estimates it could sell the equipment for $100,800. If Emerson leases the equipment, it would pay $152,000 each year, which would include all maintenance costs. Emerson’s hurdle rate is 15%. a. What is the net present value of the cost...

The ICan’tBelieveWhat’sHappening Company needs to decide whether or not to purchase a new piece of equipment....

The ICan’tBelieveWhat’sHappening Company needs to decide whether or not to purchase a new piece of equipment. The equipment costs $5.2 million (payable now). The equipment will provide before-tax cash inflows of $2.0 million a year at the end of each of the next four years. The equipment would be categorized as a 3-year tax class asset according to the MACRS system. Therefore use the following depreciation rates: 33%, 45%, 15%, and 7%, for each year respectively from year 1 through...

The ICan’tBelieveWhat’sHappening Company needs to decide whether or not to purchase a new piece of equipment....

The Old School is trying to decide whether it should purchase or lease a new high...

The Old School is trying to decide whether it should purchase or lease a new high speed photocopier machine. It will cost the school $14,000 to purchase the copier and $750 each year to maintain the machine over the course of its 6 year useful life. At the end of the sixth year, Old School expects to be able to sell the copier for $1,000. A dealer has offered to lease the school the same copier for a payment of...

Precision Tool is trying to decide whether to lease or buy some new equipment for its...

Precision Tool is trying to decide whether to lease or buy some new equipment for its tool and die operations. The equipment costs $50,000, has a 3-year life and will be worthless after the 3 years. The pre-tax cost of borrowed funds is 9 percent and the tax rate is 34 percent. The equipment can be leased for $17,500 a year. What is the net advantage to leasing? When calculation this with Excel I keep getting the wrong answer can...

Precision Tool is trying to decide whether to lease or buy some new equipment for its...

Precision Tool is trying to decide whether to lease or buy some new equipment for its tool and die operations. The equipment costs $51,000, has a 3-year life and will be worthless after the 3 years. The pre-tax cost of borrowed funds is 7 percent and the tax rate is 35 percent. The equipment can be leased for $16,000 a year. What is the net advantage to leasing? (Do not round intermediate calculations.) a. $4,831 b. $6,451 c. $6,097 d....

The Hyatt Company is trying to decide whether it should purchase new equipment and continue to...

The Hyatt Company is trying to decide whether it should purchase new equipment and continue to make its subassemblies internally or if production should be discontinued and the subassembly purchased from an outside supplier. Either way production cannot continue using the current equipment. New equipment for producing the subassemblies can be purchased at a cost of $400,000. The equipment would have a five-year useful life (the company uses straight-line depreciation) and a $50,000 salvage value. Alternatively,...

A computer manufacturing company is trying to decide whether to purchase specialized assembly equipment today or...

A computer manufacturing company is trying to decide whether to purchase specialized assembly equipment today or to wait 5 years from now, when the equipment will be first needed. If you were to purchase the equipment today it would cost: $403,000 5 years from now the equipment would cost: $634,738 The bank is paying 9.00% interest per year, compounded monthly. Should you buy the equipment now or wait 5 years to buy the equipment?

The See Thru Windows Ltd. is trying to decide whether it should purchase new equipment and...

The See Thru Windows Ltd. is trying to decide whether it should purchase new equipment and continue to make its subassemblies internally or if production should be discontinued and the subassembly purchased from an outside supplier. New equipment for producing the subassemblies can be purchased at a cost of $400,000. The equipment would have a five-year useful life (the company uses straight-line depreciation) and a $50,000 salvage value. Alternatively, the subassemblies could be purchased from an outside supplier. The supplier...

Q3) The Kam Steel Corporation is trying to decide whether to lease or buy a...

Q3) The Kam Steel Corporation is trying to decide whether to lease or buy a new production equipment. Management has already determined that acquisition of the system has a positive NPV. The system costs $375,000 and qualifies for a 25% CCA rate. The equipment will have a $95,000 salvage value in 5 years. Wildcat's tax rate is 36%, and the firm can borrow at 9%. Southtown Leasing Company has offered to lease the drilling equipment to Wildcat for payments...

Subjects