Question

In: Finance

Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools that it needs...

Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools that it needs for production during the next three years. A planned change in the firm's production technology will make the tools obsolete after 3 years. The firm will depreciate the cost of the tools on a straight-line basis. The firm can borrow $4,800,000, the purchase price, at 10 percent on a simple interest loan to buy the tools, or it can make three equal end-of-year lease payments of $2,100,000. The firm's tax rate is 40 percent. Annual maintenance costs associated with ownership are estimated at $240,000. What is the net advantage to leasing (NAL)? ANSWER IS ROUNDED TO NEAREST $100.00

$106,200

$ 0

$362,800

$647,900

$433,100

Solutions

Expert Solution

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

PVIFA @6%, 3 YEARS = ADDITION OF PVIF = 0.9434 +0.8900 + 0.8396 = 2.6730

jeff jeffy answered 4 months ago
Next > < Previous

Related Solutions

ABC is considering a leasing arrangement to finance some special manufacturing tools that is needed for...
ABC is considering a leasing arrangement to finance some special manufacturing tools that is needed for production during the next four years. A planned change in the firm’s production technology will make the tool obsolete after 4 years. The firm will depreciate the cost of the tools on a straight-line basis. The firm can borrow $4,200,000, the purchase price, at 10% to buy the tools or make four equal end of the year lease payments of $2,250,000. The firm’s tax...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering...
To finance some manufacturing tools it needs for the next 3 years, Waldrop Corporation is considering a leasing arrangement. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank...
The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of...
The profitable Palmer Golf Cart Corp. is considering investing $300,000 in special tools for some of the plastic golf cart components. The present golf cart model will continue to be manufactured and sold for 5 years, after which a new cart design will be needed, together with a different set of special tools. The saving in manufacturing costs, owing to the special tools, is estimated to be $150,000 per year for 5 years. Assume MACRS depreciation for the special tools...
Assume Bruce Ltd (lessee) has entered into a leasing arrangement with Wayne Ltd (lessor) for some...
Assume Bruce Ltd (lessee) has entered into a leasing arrangement with Wayne Ltd (lessor) for some equipment. The terms are as follows: • The lease is for 4 years and commences on the 1 July 2021. • As an incentive to enter the lease the lessee agrees to a rent free period for the first year of the lease. • There is no initial payment at the commencement of the lease. There are 3 payments of $45,000 payable on 1...
Sylvan Inc. entered into a non-cancelable lease arrangement with Breton Leasing Corporation for a certain machine....
Sylvan Inc. entered into a non-cancelable lease arrangement with Breton Leasing Corporation for a certain machine. Breton's primary business is leasing;it is not a manufacturer or dealer. Sylvan will lease the machine for a period of 3 years, which is 50% of the machine's economic life. Breton will take possession of the machine at the end of the initial 3-year lease and lease it to another, smaller company that does not need the most current version of the machine. Sylvan...
Some special topics of finance within the framework of introduction to finance are listed below. You...
Some special topics of finance within the framework of introduction to finance are listed below. You can prepare one of the topics individually or as a group member of two or three persons. Please, take care of using numerical examples in your study. The number of pages of your homework should be between 5 and 10 pages and the sources you use should be specified in the research in accordance with the research rules Special topic: -Financing of multi-national companies
Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to...
Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds to raise the money. The required return on the bonds will be 8 percent. Assume a par value of $1,000 and semiannual compounding. a. What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)   Issue price $    b. Using the IRS amortization rule, what interest deduction...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT