Question
In: Finance
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply:
1. The machinery falls into the MACRS 3-year class.
2. Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance.
3. The firm's tax rate is 25%
4. The loan would have an interest rate of 15%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4.
5. The lease terms call for $400,000 payments at the end of each of the next 4 years.
6. Big Sky Mining has no use for the machine beyond the expiration of the lease and the machine has an estimated residual value of $250,000 at the end of the 4th year.
A) WHAT IS COST OF OWNING?
B)WHAT IS COST OF LEASING?
C)What is the NAL of the lease?
PLEASE SHOW WORK ON EXCEL
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply.
(1) The machinery falls into the MACRS 3-year class.
(2) Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and maintenance.
(3) The firm’s tax rate is 25%.
(4) The loan would have an interest...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company
must install $1.5 million of new machinery in its Nevada mine. It
can obtain a bank loan for 100% of the purchase price, or it can
lease the machinery. Assume that the following facts apply:
The machinery falls into the
MACRS 3-year class. (The depreciation rates for Year 1 through Year
4 are equal to 0.3333, 0.4445, 0.1481, and 0.0741.)
Under either the lease or the
purchase, Big Sky must pay for insurance, property taxes, and...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install
$1.5 million of new machinery in its Nevada mine. It can obtain a
bank loan for 100% of the purchase price, or it can lease the
machinery. Assume that the following facts apply:
The machinery falls into the MACRS 3-year class
Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and maintenance.
The firm’s tax rate is 40%
The loan would have an interest rate of 15%. It...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply.
• The machinery falls into the MACRS 3-year class (.3333, .4445,
.1481. .0741).
• Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and maintenance.
• The firm’s tax rate is 40%.
• The loan...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply: The machinery falls into the MACRS 3-year
class. Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and maintenance. The firm's tax rate is
30%. The loan would have an interest rate of 16%. It...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company
must install $1.5 million of new machinery in its Nevada mine. It
can obtain a bank loan for 100% of the purchase price, or it can
lease the machinery. Assume that the following facts apply:
The machinery falls into the
MACRS 3-year class.
Under either the lease or the
purchase, Big Sky must pay for insurance, property taxes, and
maintenance.
The firm's tax rate is
30%.
The loan would have an
interest rate of 15%. It...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada
mine. It can obtain a bank loan for 100% of the purchase price, or
it can lease the
machinery. Assume that the following facts apply.
(1) The machinery falls into the MACRS 3-year class.
(2) Under either the lease or the purchase, Big Sky must pay for
insurance, property
taxes, and maintenance.
(3) The firm’s tax rate is 25%.
(4) The loan would have an interest...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply:
The machinery falls into the MACRS 3-year class. (The
depreciation rates for Year 1 through Year 4 are equal to 0.3333,
0.4445, 0.1481, and 0.0741.)
Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply:
The machinery falls into the MACRS 3-year class. (The
depreciation rates for Year 1 through Year 4 are equal to 0.3333,
0.4445, 0.1481, and 0.0741.)
Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and...
Big Sky Mining Company must install $1.5 million of new machinery in its Nevada mine. It...
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply:
The machinery falls into the MACRS 3-year class. (The
depreciation rates for Year 1 through Year 4 are equal to 0.3333,
0.4445, 0.1481, and 0.0741.)
Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and...
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