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In: Finance
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available...
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High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. The lease payments will be $87,000 for five years, due at the beginning of each year. This machine will save Farmer $32,500 per year through reductions in electricity costs. As an alternative, Farmer can purchase a more energy-efficient machine from Basic Machine Corporation (BMC) for $418,000. This machine will save $36,500 per year in electricity costs. A local bank has offered to finance the machine with a $418,000 loan. The interest rate on the loan will be 7 percent on the remaining balance and will require five annual principal payments of $83,600. Farmer has a target debt-to-asset ratio of 66 percent and a tax rate of 22 percent. After five years, both machines will be worthless. The machines will be depreciated on a straight-line basis. |
| a. | What is the NAL of leasing? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | How much debt is displaced by this lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available...
High electricity costs have made Farmer Corporation’s
chicken-plucking machine economically worthless. Only two machines
are available to replace it. The International Plucking Machine
(IPM) model is available only on a lease basis. The lease payments
will be $73,000 for five years, due at the beginning of each year.
This machine will save Farmer $23,000 per year through reductions
in electricity costs. As an alternative, Farmer can purchase a more
energy-efficient machine from Basic Machine Corporation (BMC) for
$370,000. This machine...
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available...
High electricity costs have made Farmer Corporation’s
chicken-plucking machine economically worthless. Only two machines
are available to replace it. The International Plucking Machine
(IPM) model is available only on a lease basis. The lease payments
will be $83,000 for five years, due at the beginning of each year.
This machine will save Farmer $30,500 per year through reductions
in electricity costs. As an alternative, Farmer can purchase a more
energy-efficient machine from Basic Machine Corporation (BMC) for
$387,000. This machine...
High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available...
High electricity costs have made Farmer Corporation’s
chicken-plucking machine economically worthless. Only two machines
are available to replace it. The International Plucking Machine
(IPM) model is available only on a lease basis. The lease payments
will be $85,000 for five years, due at the beginning of each year.
This machine will save Farmer $31,500 per year through reductions
in electricity costs. As an alternative, Farmer can purchase a more
energy-efficient machine from Basic Machine Corporation (BMC) for
$405,000. This machine...
A company is contemplating to purchase a machine. Two machines A & B are available each...
A company is contemplating to purchase a machine. Two machines
A & B are available each costing $ 500,000. In computing
profitability of the machines a discounted rate of 10% is to be
used.
Cash Flows (Rs)
Year Machine A Machine B
1 1,50,000 50,000
2 2,00,000 1,50,000
3 2,50,000 2,00,000
4 1,50,000 3,00,000
5 1,00,000 2,00,000
Using NPV Method, indicate which m/c would be
profitable?
A company is contemplating to purchase a machine. Two machines A & B are available each...
A company is contemplating to purchase a machine. Two machines
A & B are available each costing $ 500,000. In computing
profitability of the machines a discounted rate of 10% is to be
used.
Cash Flows (Rs)
Year Machine A Machine B
1 1,50,000 50,000
2 2,00,000 1,50,000
3 2,50,000 2,00,000
4 1,50,000 3,00,000
5 1,00,000 2,00,000
Using NPV Method, indicate which m/c would be
profitable?
A farmer wants to cross a river with a chicken, some grain, and a fox. His boat can only carry two items at a time.
Process Synchronization A farmer wants to cross a river with a chicken, some grain, and a fox. His boat can only carry two items at a time. The fox will eat the chicken if left alone. The chicken will eat the grain if left without the farmer. Build the application to synchronize the crossing so all three items arrive across the river.
UMB Co. is evaluating two machines. Both machines meet the firm’s quality standard. Machine X costs...
UMB Co. is evaluating two machines. Both machines meet the
firm’s quality standard. Machine X costs $40 000 initially and
$1000 per year to maintain. Machine Y costs $24 000 initially and
$2000 per year to maintain. Machine X has a six-year useful life
and Machine Y has a three-year useful life. Both machines have zero
salvage value. Assume the firm will continue to replace worn-out
machines with similar machines and that the discount rate is 25%.
Which machine should...
Thane Company is interested in establishing the relationship between electricity costs and machine hours. Data have...
Thane Company is interested in establishing the relationship
between electricity costs and machine hours. Data have been
collected and a regression analysis prepared using Excel. The
monthly data and the regression output follow: Month Machine Hours
Electricity Costs January 3,000 $ 18,650 February 3,400 $ 21,500
March 2,400 $ 13,750 April 3,600 $ 23,500 May 4,300 $ 28,500 June
3,800 $ 22,500 July 4,600 $ 25,000 August 4,000 $ 23,000 September
2,500 $ 16,000 October 4,200 $ 26,500 November 5,600...
You are evaluating two machines. Machine I costs $240,000 and it has a three-year life. It...
You are evaluating two machines. Machine I costs $240,000 and it
has a three-year life. It has pre-tax operating costs of $60,000
per year. Machine II costs $450,000 and it has a five-year life. It
has pre-tax operating costs of $40,000 per year. For both machines,
we use straight-line depreciation to zero over the machine’s life.
The pre-tax salvage value of Machine I is $50,000 at the end of its
life. The pre-tax salvage value of Machine II is $150,000...
You are evaluating two different machines. Machine A costs $210,000, has a three-year life and has...
You are evaluating two different machines. Machine A costs
$210,000, has a three-year life and has pretax operating costs of
$30,000 per year. Machine B costs $320,000, has a five-year life
and has pretax operating costs of $23,000 per year. You will
depreciate both machines using straight-line depreciation to a zero
salvage value over the machine’s life. The expected salvage value
for each machine is $20,000. If your tax rate is 40%, both machines
are repeatable and your discount rate...
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