Question
In: Finance
Comey Products has decided to acquire some new equipment having a $170,000 purchase price. The equipment...
Comey Products has decided to acquire some new equipment
having a $170,000 purchase price. The equipment will last 4 years
and is in 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.)
The firm can borrow at a 5% rate and pays a 25% federal-plus-state
tax rate. Comey is considering leasing the property but wishes to
know the cost of borrowing that it should use when comparing
purchasing to leasing and has hired you to answer this question.
What is the correct answer to Comey’s question? (Hint: Use the
shortcut method to find the after-tax cost of the loan payments.)
Do not round intermediate calculations. Round your answer to the
nearest dollar.
$
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Comey Products has decided to acquire some new equipment having a $170,000 purchase price. The equipment...
Comey Products has decided to acquire some new equipment
having a $170,000 purchase price. The equipment will last 4 years
and is in 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.)
The firm can borrow at a 5% rate and pays a 25% federal-plus-state
tax rate. Comey is considering leasing the property but wishes to
know the cost of borrowing that it should use when comparing
purchasing...
Comey Products has decided to acquire some new equipment having a $270,000 purchase price. The equipment...
Comey Products has decided to acquire some new equipment having
a $270,000 purchase price. The equipment will last 4 years and is
in 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.)
The firm can borrow at a 10% rate and pays a 25% federal-plus-state
tax rate. Comey is considering leasing the property but wishes to
know the cost of borrowing that it should use when comparing
purchasing...
Sirius has decided to acquire a new equipment at a cost of $748,000. The equipment has...
Sirius has decided to acquire a new equipment at a cost of
$748,000. The equipment has an expected life of 6 years and will be
depreciated using 5-year MACRS with rates of .20, .32, .192, .1152,
.1152, and .0576 (note that 5-year MACRS depreciation actually
takes place over 6 years). There is no actual salvage value. Travis
Capital has offered to lease the equipment to Sirius for $153,000 a
year for 6 years, with lease payment at the end of...
Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...
Mattel, Inc. has decided to acquire a new equipment at a cost of
$760,000. The equipment has an expected life of 6 years and will be
depreciated using 5-year MACRS with rates of .20, .32, .192, .1152,
.1152, and .0576 (note that 5-year MACRS depreciation actually
takes place over 6 years). There is no actual salvage value. Mass
Financing has offered to lease the equipment to Mattel for $148,000
a year for 6 years. Mattel has a cost of equity...
Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...
Mattel, Inc. has decided to acquire a new equipment at a cost of
$760,000. The equipment has an expected life of 6 years and will be
depreciated using 5-year MACRS with rates of .20, .32, .192, .1152,
.1152, and .0576 (note that 5-year MACRS depreciation actually
takes place over 6 years). There is no actual salvage value. Mass
Financing has offered to lease the equipment to Mattel for $148,000
a year for 6 years. Mattel has a cost of equity...
Lear Corporation has decided to acquire a new equipment at a cost of $698,000. The equipment...
Lear Corporation has decided to acquire a new equipment at a
cost of $698,000. The equipment has an expected life of 6 years and
will be depreciated using 5-year MACRS with rates of .20, .32,
.192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation
actually takes place over 6 years). There is no actual salvage
value. Riverhawk Financing has offered to lease the equipment to
Lear for $135,000 a year for 6 years. Lear has a cost of equity...
1. An oil refinery has decided to purchase some new drilling equipment for $550,000. The equipment...
1. An oil refinery has decided to purchase some new drilling
equipment for $550,000. The equipment will be kept for 10 years
before being sold. The estimated salvage value (SV) for
depreciation purposes is to be $25,000. Use this information to
solve the following questions:
a) Using the straight-line (SL) method, the annual depreciation
on the equipment is _________________.
b) Using the double declining balance (DDB) method, the
depreciation charge in year 3 is ______________.
c) Using the SL method,...
Veritas Inc. has decided to acquire a new Hydraulic Excavator. It has three options. Caterpillar: purchase...
Veritas Inc. has decided to acquire a new Hydraulic Excavator.
It has three options. Caterpillar: purchase cost of $350,324 and
operating costs of $21,964 per year (paid at the end of each year).
John Deere: purchase cost of $285,068 and operating costs of
$20,274 per year (paid at the end of each year). Volvo: purchase
cost of $307,686 and operating costs of $15,767 per year (paid at
the end of each year). Assume that Geek Inc. has a budget of...
Veritas Inc. has decided to acquire a new Hydraulic Excavator. It has three options. Caterpillar: purchase...
Veritas Inc. has decided to acquire a new Hydraulic Excavator.
It has three options.
Caterpillar: purchase cost of $356609 and operating costs of
$20439 per year (paid at the end of each year).
John Deere: purchase cost of $280828 and operating costs of
$24980 per year (paid at the end of each year).
Volvo: purchase cost of $311464 and operating costs of $18932
per year (paid at the end of each year).
Assume that Geek Inc. has a budget of...
Daily Enterprises is contemplating the acquisition of some new equipment. The purchase price is $35,000. The...
Daily Enterprises is contemplating the acquisition of some new
equipment. The purchase price is $35,000. The equipment has a
4-year life. The company expects to sell the equipment at the end
of year 4 for $7,000. The firm uses MACRS depreciation which allows
for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent
depreciation over years 1 to 4, respectively. The equipment can be
leased for $9,000 a year. The firm can borrow money at 9 percent
and has a...
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