A company needs to decide whether to buy or lease new equipment. The equipment can be purchased for $600,000 or leased at an annual cost of $160,000. The equipment qualifies for a 30% CCA rate and has an expected life of 4 years. The salvage value is expected to be zero. The company's after-tax cost of debt is 8% and its tax rate is 20%. Lease payments would be due at the beginning of each year. Taxes are paid at the end of each year. What is the present value of the lease payments tax shield

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A: Initial Investment  $ 12,50,000.00 Gross Savings  $ 10,00,000.00 Annual operating cost  $…

Q: A company is deciding whether to lease or buy new equipment that can be purchased for $33,000. If…

A: Present Value   It is the concept which  states  that an amount of money in the future is less worth…

Q: Jacobs is considering the purchase of a new machine for $10,700 that has a life of 6 years and would…

A: Present Value- The value of an investment or an amount today is referred to as its present value. It…

Q: Beemer Construction Company is considering selling excess machinery with a book value of $280,000…

A: Cost of selling=Sale value×Brokerage=$221,000×5%=$11,050

Q: Ajax Leasing Services has been approached by Gamma Tools to provide lease financing for a new…

A: The following information is required to compute lease payment:

Q: A bulldozer can be purchased for $380,000 and used for 6 years, when its salvage value is 15% of the…

A: Given: Cost of bulldozer = $380,000 No of years used = 6 years Salvage value = 15% of 380,000 =…

Q: A local delivery company has purchased a delivery truck for $15,000. The truck will be depreciated…

A: Computation:

Q: A company is considering the purchase of a new electron beam welder at a price of $250,000. The…

A: Working capital, also known as net working capital (NWC), is the difference between a company's…

Q: The Janna Company is planning to purchase a new machine. The payback period will be six years. The…

A: The payback period is the time taken by the investment to recover its cost. The payback does not…

Q: The NUBD Co. is planning to purchase a new machine. The payback period will be 6 years. The cash…

A: Pay back period means cost of asset is recovered in that period through CFAT. Therefore in the above…

Q: A company is considering the purchase of a new machine for $50,000, installed. The machine has a tax…

A: For evaluating any new asset or project, cashflows are considered. For overall evaluation cashflows…

Q: A company is considering buying a new piece of machinery. the initial cost of the machine is 80,000…

A: The equivalent uniform annual cost (EAC) will represent the total costs of the machine in a form of…

Q: ABC Co is considering either leasing or buying a new freezer unit. The unit costs $6.4 million and…

A: When one company lends another company to use the assets for a particular time period, for which the…

Q: XYZ Company plans to invest $1 million in a new plant which is expected to produce a uniform annual…

A: Net Present Value: It is the difference  between the current worth of money inflows  and outflows…

Q: Next Corporation needs a piece of equipment that costs $270 million. Next can either lease the…

A: Solution: Calculation of Present value of the Cash outflow under Purchase Option : Under purchase…

Q: The Shakey Company can finance the purchase of a new building costing $2 million with a bond issue,…

A: The question is based on the concept of comparison between buy and lease decision of fixed asset in…

Q: Emaar Builders need to acquire the use of a crane for construction business, and are considering…

A: crane cost = 2,500,000 stright line depreciation and zero salvage time period = 5  lease rent =…

Q: A firm can purchase a centrifugal separator​ (5-year MACRS​ property) for​$17,000. The estimated…

A: Given Data: Investment ($) 17000 Useful life 6 Salvage value($) 3000 Tax rate 23% MARR 12%…

Q: Ramsis is a heavy equipment rental company. It is considering the purchase of Tower crane at a price…

A: Before investing in new assets or projects, profitability of the project is evaluated by using…

Q: Ramsis is a heavy equipment rental company. It is considering the purchase of Tower crane at a price…

A: Discounted payback period Discounted payback period calculates the period to achieve the earnings…

Q: BiliBala Inc. needs some new equipment. Now the company can choose to either lease or purchase the…

A: Lease accounting

Q: A company is deciding whether to lease or buy new equipment that can be purchased for $33,000. If…

A: Leases is the amount of rent paid which is accrued due to the agreement between property owner and…

Q: fter tax annual cost

A: Cash flow represents the money in and out of the company. It refers to the financial statement that…

Q: Hull Manufacturing Co. must decide whether to purchase or lease a new piece of equipment. The…

A: Computation:

Q: A firm is considering the purchase of a fixed asset for $500 that will be depreciated as a…

A: There are different groups in MACRS such as 3-year property, 5-year property, 7-year property,…

Q: Amazing Manufacturing, Inc., has been considering the purchase of a new manufacturing facility for…

A: Please see the table below. Please be guided by the second column  to understand the mathematics.…

Q: Kotse Automotive is planning to expand its operation by planning to add a machine costing $90,000.…

A: To choose between Option 1 and Option 2, it is required to calculate and compare Present Value Cost…

Q: A company wants to purchase a piece of equipment that costs $18,000. In 8 years, that same piece of…

A: Initial cost $18,000 Salvage Value at the end of 8 Years = $5000 Annual maintenance cost for year 1…

Q: Al-Tek is considering leasing some new equipment for 5 years with annual payments. The equipment…

A: Leasehold is an accounting and financial term that refers to those assets that are being leased to…

Q: Super Sonics Entertainment is considering buying a machine that costs $445,000. The machine will be…

A: NAL or net advantage of lease is simply the benefit of lease over buying optionz it is given by NAL…

Q: A firm needs to either buy or lease $200,000 worth of equipment. The equipment has a life of 5 years…

A: Leased at a cost = $45,000Tax shield = Lease payment ×Tax rateTax shield = 45000 ×33%Tax shield =…

Q: Mowbot Company is evaluating the production of a new part. It would require the acquisition of a…

A: Introduction Lease or buy decision Given that Acquisition cost of CNC is $375,000, machine resale…

Q: An injection molding machine can be purchased and installed for $75,000. It has a GDS recovery…

A: The capital budgeting is a technique that helps to analyze the profitability of the project.

Q: Turner plc is considering whether to buy a machine costing K100,000 through a three-year loan with…

A: Decision-making between buying with a loan and leasing out can be done by making a comparison of NPV…

Q: A firm can purchase a centrifugal separator​ (5-year MACRS​ property) for ​$22,000. The estimated…

A: Net Present Value=(Present Value of Cash Inflows-Present Value of Cash Outflows)

Q: The NUBD Co. is planning to purchase a new machine. The payback period will be 6 years. The cash…

A: Payback period means the time period or time duration, it takes for recovering the investment cost.…

Q: A construction company can purchase a used backhoe for $90,000 and spend $450 per day in operating…

A: Initial cost of alternative 1  = $90,000 Operating cost of alternative 1  = $450 per day Operating…

Q: Burlington Construction Company is considering selling excess machinery with a book value of…

A: Brokerage commission = Sales value x 6% = $90000 x 6% = $5,400

Q: ANB Leasing is planning to lease an asset costing $210,000. The lease period will be 6 years. At the…

A: Given information, Initial outlay =$210,000 Salvage value =$30,00 Useful life =6 years Discount…

Q: income taxes, will be P20,000 a year for each of the first three years of the payback period and…

A: Given information : Years Cash flow Depreciation  1 20000 15000 2 20000 15000 3 20000 15000…

Q: A firm is considering the purchase of a fixed asset for $500 that will be depreciated as a…

A: Cash flow from the assets in year five is the sum of operating cash flow and after-tax salvage value…

Q: The equipment, which manufactures Easter baskets, costs $74,000 and can be leased over seven years…

A: Lease Payment While taking the decision of purchase of assets to the business whether it is…

Q: Consider a machine that costs P20,000 and has a five years useful life. At the end of the five…

A: The question is based on the concept of Financial Management.

Q: Eclipse Construction Company is considering selling excess machinery with a book value of $280,000…

A: Requirement 1: Prepare the differential analysis of company EC as on April 16.

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.