After a critical analysis of the purchase options, we have narrowed our acquisition of the proposed...

After a critical analysis of the purchase options, we have narrowed our acquisition of the proposed factory machine to two candidate, KMP Leasing Company and GML Leasing Corporation.

Below are the details of responses from the shot listed companies:

Lease Terms – KMP Leasing Company

Purchase Price of machine $ 200000

Lease term 7 years

Estimated useful life of asset 10 years

Scrap value as a percentage of purchase price 20%

Depreciation method - straight method

Lease payments per year $33000 Marginal tax rate 21%

Current borrowing rate 7%

Determine the Net Present Value (NPV ) for each lease term using the after tax cost of borrowing ( marginal tax rate ) , and which lease term has the best deal for the company?

Solutions

Expert Solution

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

When looking at the cost benefit analysis we are basically weighing our options. We see this...

When looking at the cost benefit analysis we are basically weighing our options. We see this type of method can be used for many different scenarios. Do you find most public administers would use a cost and benefit analysis to measure new projects or developments?

u are looking for a car and have narrowed it down to two options. You can...

u are looking for a car and have narrowed it down to two options. You can buy a new car at a cost of $23,995, which has estimated life of 12 years and annual maintenance costs of $750 per year. Your second option is a used car at a cost of $14,225, with an estimated remaining life of 7 years and annual maintenance costs of $1800 per year. Which is the cheaper option, given your borrowing cost of 7%?

Norma and Fred Buyalot are buying a new combine. They have narrowed their options to two...

Norma and Fred Buyalot are buying a new combine. They have narrowed their options to two combines and must purchase one. Each combine will provide the same cash inflows, but differ in initial cost, operating costs and salvage value. Machine A's purchase price is $120,000, will cost $2,500 per year to run, and has a salvage value of $10,000. Machine B is priced at $100,000, will cost $3,000 per year to run, and has a salvage value of $5,000. Both...

What is our t-critical if we have a sample of 35 people and want to use...

What is our t-critical if we have a sample of 35 people and want to use an alpha of .05, where our hypothesis specifies direction? What is our t-critical if our sample has 96 people, we want to use an alpha of .01, and do not have hypotheses which include direction? Given a sample of 68 women, with an estimated standard error of 2.5 and a sample mean of 15, construct a confidence interval for a one-tailed test with an...

What is “net after-tax” cost of the acquisition for asset purchase in compared to stock purchase.

Consider the following two options proposed by an auto dealer: Option A: purchase the vehicle at...

Consider the following two options proposed by an auto dealer: Option A: purchase the vehicle at the normal price of $50,000 and pay for the vehicle over 48 months with equal monthly payments at 3% APR financing. Option B: purchase the vehicle at a discounted price of $48,056.90 to be paid immediately. The funds that would be used to purchase the vehicle are presently in a savings account that earns 5% compounded monthly. Which option is more economically sound? Option...

We have three options in replacing our fleet of vehicles. Option one is to use high-end...

We have three options in replacing our fleet of vehicles. Option one is to use high-end vehicles that cost $85,000 dollars, require maintenance of $1,000 per year and have a salvage value of $60,000 after five years. Option two is to use mid-value vehicles that cost $65,000, require $2,000 in maintenance each year and have a salvage value of $50,000 after four years. Option three is to use low-value vehicles that cost $40,000, require maintenance of $3,000 per year and...

You have been asked by the president of your company to evaluate the proposed acquisition of...

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The truck's basic price is $265,000, and it will cost another $35,000 to modify it for special use by your firm. The truck falls into the MACRS three-year class, and it will be sold after three years for $45,000. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $20,000. The truck will...

You have been asked by the president of your company to evaluate the proposed acquisition of...

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $410,000. The truck falls into the MACRS 3-year class, and it will be sold after 3 years for $66,000. Use of the truck will require an increase in NWC (spare parts inventory) of $6,600. The truck will have no effect on revenues, but it is expected to save the firm $120,000 per year in before-tax operating costs, mainly labor....

You have been asked by the president of your company to evaluate the proposed acquisition of...

You have been asked by the president of your company to evaluate the proposed acquisition of a new spectrometer for the firm’s R&D department. The equipment’s basic price is $70,000 and it would cost another $15,000 to modify it for special use by your firm. The spectrometer, which has a MACRS 3-year recovery period, would be sold after 3 years for $30,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The...

Subjects