Question

In: Finance

Freedom Ltd is considering whether to lease or buy an advanced machine for its new product....

Freedom Ltd is considering whether to lease or buy an advanced machine for its new product. The following information is available for this decision: Buy: The purchase price of the machine is $4.85 million. The machine will be depreciated using straight-line method over 4 years with a zero salvage value. Lease: The annual lease payments will be $1.1 million, payable at the beginning of each of the four years of the lease. The annual interest rate of secured debt is 11.67%. The corporate tax rate is 40%.

(a) Should the firm lease or buy the machine? Why?

(b) Calculate the maximum amount of lease payment that Freedom Ltd is willing to pay.

Solutions

Expert Solution

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


Related Solutions

Freedom Ltd is considering whether to lease or buy an advanced machine for its new product....
Freedom Ltd is considering whether to lease or buy an advanced machine for its new product. The following information is available for this decision: Buy: The purchase price of the machine is $4.85 million. The machine will be depreciated using straight-line method over 4 years with a zero salvage value. Lease: The annual lease payments will be $1.1 million, payable at the beginning of each of the four years of the lease. The annual interest rate of secured debt is...
Freedom Ltd is considering whether to lease or buy an advanced machine for its new product....
Freedom Ltd is considering whether to lease or buy an advanced machine for its new product. The following information is available for this decision: Buy: The purchase price of the machine is $4.85 million. The machine will be depreciated using straight-line method over 4 years with a zero salvage value. Lease: The annual lease payments will be $1.1 million, payable at the beginning of each of the four years of the lease. The annual interest rate of secured debt is...
Freedom Ltd is considering whether to lease or buy an advanced machine for its new product....
Freedom Ltd is considering whether to lease or buy an advanced machine for its new product. The following information is available for this decision: Buy: The purchase price of the machine is $4.85 million. The machine will be depreciated using straight-line method over 4 years with a zero salvage value. Lease: The annual lease payments will be $1.1 million, payable at the beginning of each of the four years of the lease. The annual interest rate of secured debt is...
Question 3 (17 marks) Freedom Ltd is considering whether to lease or buy an advanced machine...
Question 3 Freedom Ltd is considering whether to lease or buy an advanced machine for its new product. The following information is available for this decision: Buy: The purchase price of the machine is $4.85 million. The machine will be depreciated using straight-line method over 4 years with a zero salvage value. Lease: The annual lease payments will be $1.1 million, payable at the beginning of each of the four years of the lease. The annual interest rate of secured...
A contractor is considering whether to buy or lease a new machine for her layout site...
A contractor is considering whether to buy or lease a new machine for her layout site work. Buying a new machine will cost $12,000 with a salvage value of $1200 after the machine's useful life of 8 years. On the other hand, leasing requires an annual lease payment of $3000, which occurs at the state of each year. The MARR is 15%. On the basis of an internal rate of return analysis, which alternative sgould the contractor be advised to...
You are considering whether to buy or lease a car. If you lease, you have to...
You are considering whether to buy or lease a car. If you lease, you have to pay a refundable security deposit of $5 hundred, and a monthly lease payment of $424 for 3 years, with payments due at the beginning of the month. If you buy, you will pay a downpayment of $21 hundred, and a monthly loan payment of $565, over the same period of time, with payments due at the end of the month. The car is estimated...
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....
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 $55,000, has a 3-year life and will be worthless after the 3 years. The pre-tax cost of borrowed funds is 6 percent and the tax rate is 33 percent. The equipment can be leased for $17,500 a year. What is the net advantage to leasing?
Carson Auto is currently considering whether or not to acquire a new machine for its manufacturing...
Carson Auto is currently considering whether or not to acquire a new machine for its manufacturing operation. The machine costs $700,000 and will be depreciated using straight-line depreciation toward a zero salvage value over the next five years. During the life of the machine, no new capital expenditures or investments in working capital will be required. The new handler is expected to save Carson $250,000 per year before taxes of 30%. Carson's CFO recently estimated the rm's opportunity cost of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT