Gustin Corp manufactures, sells, and leases medical equipment. Gustin Corp agrees to lease 3 CAT scanners, 2 MRIs, and 2 surgical Robots to Murray Hospital. The cost for Gustin to manufacture is 5,000,000. The lease term is eight years and requires eight lease payments of 1,800,000 each. Gustin expects the equipment to be worth 2,000,000 at the end of the lease but non of that amount is guaranteed by Murray hospital.

The lease begins on January 1, Year 1 and will last through December 31, Year 8. The first Lease payment of 1,800,000 is due on January 1, Year, 1 the next payment is due on December 31 year 1 and the remaining payments will continue on December 31 every year until the last one on December 31, Year 7. At the end of the lease term on December 31 Year 8 the medical equipment will be returned to Gustin Corp.

Both companies have December 31 fiscal year end. The implicit rate in the lease is 11 percent and Murray hospital is aware of that rate.

A.) Prepare journal entries for the first cash payment on January 1, year 1 for both the lessee and lessor.

B.) Provide any journal entries for the lessee and the lessor during year 1 including the second cash payment on December 31, year 1 for both the lessee and the lessor.

C .)Provide all journal entries for the lessee and the lessor during year 5.

D.) What amounts would the lessee and the lessor report on their income statement and on the balance sheet for year 5

E.) prepare all necessary entries on the books of the lessor and lessee at the termination of the lease on December 31, Year 8 assuming that the actual residual value of the equipment at the time is: A) 2,000,000 B) 3,000,000 C) 1,000,000

Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and remain at that rate. 

Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for the remaining years. 

Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after. 

Year 1Year 2Year 3Year 4Year 5Year 6Year 7-   75,000   100,000   125,000   150,000   150,000   150,000

Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and remain at that rate. 

Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for the remaining years. 

Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after. 

Revenues are estimated to be:

Year 1Year 2Year 3Year 4Year 5Year 6Year 7-   80,000   95,000   130,000   140,000   150,000   160,000
The company’s required rate of return is 8%.
Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose. They have requested that the four main capital budgeting calculations be done: NPV, IRR, Payback Period, and ARR for each option.
For this assignment, compute all required amounts and explain how the computations were performed. Evaluate the results for each option and explain what the results mean. Based on your analysis, recommend which option the company should pursue.

A firm producing digital cameras considers a new investment which is about opening a new plant.

The project’s lifetime is estimated as 5 years and requires 22 million TL as investment cost. Salvage value of the project is estimated as 4 million TL (which will be received in the sixth year) However firm prefers to show salvage value only as 2 million TL. Firm uses 5-year straight line depreciation.

It is estimated that the sales will be 12 million TL next year and then sales will grow by 20% each year.

It is estimated that fixed costs will be 1.5 million next year and then will grow by 5% each year.

Variable costs are projected %10 of sales each year.

This project, in addition, requires a working capital of $ 3 million in the first year, 4 million in the second year, 4 million in third year, 3 million in the fourth year and 1.5 million in the fifth year.

Firm plans to use a debt/equity ratio of %50 in this project.

The company can borrow TL loan with an interest cost of 14% before tax. Corporate tax rate is 20%. The shares of this company in Borsa Istanbul are selling at 8 TL and the stocks have approximately market risk and have strong correlation with BIST100 index. 10- year government bond yields at %12 and market risk premium is %8.

Given this information; find the NPV and IRR of the project; is this project feasible or not?

If you want, you can solve this question using excel.

What is the result of higher WACC ? Can a company reduce its WACC ? If yes, how? Give numerical example related with this project and explain this topic briefly regarding to the capital structure theories.

A firm producing digital cameras considers a new investment which is about opening a new plant.

The project’s lifetime is estimated as 5 years and requires 22 million TL as investment cost. Salvage value of the project is estimated as 4 million TL (which will be received in the sixth year) However firm prefers to show salvage value only as 2 million TL. Firm uses 5-year straight line depreciation.

It is estimated that the sales will be 12 million TL next year and then sales will grow by 20% each year.

It is estimated that fixed costs will be 1.5 million next year and then will grow by 5% each year.

Variable costs are projected %10 of sales each year.

This project, in addition, requires a working capital of 3 million TL in the first year, 4 million TL in the second year, 4 million TL in third year, 3 million TL in the fourth year and 1.5 million TL in the fifth year.

Firm plans to use a debt/equity ratio of %50 in this project.

The company can borrow TL loan with an interest cost of 14% before tax. Corporate tax rate is 20%. The shares of this company in Borsa Istanbul are selling at 8 TL and the stocks have approximately market risk and have strong correlation with BIST100 index. 10- year government bond yields at %12 and market risk premium is %8.

Given this information; find the NPV and IRR of the project; is this project feasible or not?

If you want, you can solve this question using excel.

What is the result of higher WACC ? Can a company reduce its WACC ? If yes, how? Give numerical example related with this project and explain this topic briefly regarding to the capital structure theories.

A firm producing digital cameras considers a new investment which is about opening a new plant.

The project’s lifetime is estimated as 5 years and requires 22 million TL as investment cost. Salvage value of the project is estimated as 4 million TL (which will be received in the sixth year) However firm prefers to show salvage value only as 2 million TL. Firm uses 5-year straight line depreciation.

It is estimated that the sales will be 12 million TL next year and then sales will grow by 20% each year.

It is estimated that fixed costs will be 1.5 million next year and then will grow by 5% each year.

Variable costs are projected %10 of sales each year.

This project, in addition, requires a working capital of 3 million TL in the first year, 4 million TL in the second year, 4 million TL in third year, 3 million TL in the fourth year and 1.5 million in the fifth year.

Firm plans to use a debt/equity ratio of %50 in this project.

The company can borrow TL loan with an interest cost of 14% before tax. Corporate tax rate is 20%. The shares of this company in Borsa Istanbul are selling at 8 TL and the stocks have approximately market risk and have strong correlation with BIST100 index. 10- year government bond yields at %12 and market risk premium is %8.

Given this information; find the NPV and IRR of the project; is this project feasible or not?

What is the result of higher WACC ? Can a company reduce its WACC ? If yes, how? Give numerical example related with this project and explain this topic briefly regarding to the capital structure theories.

A machine costing $214,800 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 487,000 units of product during its life. It actually produces the following units: 121,800 in 1st year, 122,600 in 2nd year, 121,500 in 3rd year, 131,100 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

  
Required:

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight-line depreciation.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Units of production.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Double-declining-balance.

Assume you have $1 million now, and you have just retired from your job. You expect to live for 20 years, and you want to have the same level of consumption (i.e., purchasing power) for each of these 20 years, after adjusting for inflation. You also wish to leave the purchasing power equivalent of $100,000 today to your kids at the end of the 20 years as a bequest (or to pay them to take care of you).
You expect inflation to be 3% per year for the next 20 years, and nominal interest rates are expected to stay around 8% per year.

   A.   Calculate the actual amount of consumption, in nominal dollars, using the stated assumptions.

       i.   How much do you need for your kids? (180,611.12??)

       ii.   If you plan to consume $1.03 in year 1, how much will you need to have to keep the same real consumption in year 2? In year 10? In year 20?

       iii.   How much, in nominal dollars, will $1 of retirement funds earn in year 1? Year 2? Year 10? Year 20?

       iv.   In an Excel spreadsheet (or in a manual table), calculate the following:

           a.   annual investment earnings for each year

           b.   total savings after investment earnings for each year

           c.   subtract annual consumption from total savings each year

           d.   by trial and error, or with the Goal Seek command, determine the amount of consumption that will give you exactly $100,000, in today's purchasing power, at the end of 20 years

Hint: You will need to make your annual consumption column dependent on the inflation rate, your investment earnings will grow at the nominal rate, and the bequest of $100,000 will grow at the inflation rate.

A machine costing $213,200 with a four-year life and an estimated $16,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 493,000 units of product during its life. It actually produces the following units: 122,600 in Year 1, 122,500 in Year 2, 120,100 in Year 3, 137,800 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate—this difference was not predicted. (The machine cannot be depreciated below its estimated salvage value.)

Required:

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Straight-line depreciation.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Units of production.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Double-declining-balance.

A machine costing $257,500 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 475,000 units of product during its life. It actually produces the following units: 220,000 in Year 1, 124,600 in Year 2, 121,800 in Year 3, and 15,200 in Year 4. The total number of units produced by the end of Year 4 exceeds the original estimate—this difference was not predicted. (The machine cannot be depreciated below its estimated salvage value.)
Required:
Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places.)
Complete this question by entering your answers in the tabs below.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Straight-line depreciation.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Units of production.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under the Double-declining-balance.

The company's net operating income for the month is $102,000.

Q:) Assuming a constant sales mix, what is Dalia Corporation's companywide break-even sales? (Do not round the intermediate calculations. Round the final answer to the nearest dollars.)