AREL machinery 180,000 pounds X brand Japanese CNC machine rental (leasing) method. He will get rid of his debt by paying £ 38,498. 78 each year for 15 years , What is the annual interest rate applied to this lease?

AREL machinery 180,000 pounds X brand Japanese CNC machine rental (leasing) method. He will get rid of his debt by paying £ 38,498. 78 each year for 15 years , What is the annual interest rate applied to this lease?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8MC: Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master...

See similar textbooks

Similar questions

Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000
Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?
FISH CHIPS INC, PART I LEASE ANALYSIS Martha Millon, financial manager for Fish it Chips Inc., has been asked to perform a lease-versus-buy analysis on a new computer system. The Computer costs 1,200,000, and if it is purchased. Fish Chips could obtain a term loan for the full amount at a 10% cost. The loan would be amortized over the 4-year life of the computer, with payments made at the end of each year The computer is classified as special purpose; hence, it falls into the MACRS 3-year class. The applicable MACRS rates are 33%. 45%. 15%, and 7%. If the computer is purchased, a maintenance contract must be obtained at a cost of 25,000, payable at the beginning of each year. After 4 years, the computer will be sold. Millons best estimate of its residual value at that time is 125,000. Because technology is changing rapidly however, the residual value is uncertain. As an alternative. National Leasing is willing to write a 4-year lease on the computer, including maintenance, for payments of 340,000 at the beginning of each year. Fish 4c Chipss marginal federal-plus-state tax rate is 40%. Help Millon conduct her analysis by answering the following questions. a. 1. Why is leasing sometimes referred to as "off-balance-sheet" financing? 2. What is the difference between a capital lease and an operating lease? 3. What effect does leasing have on a firms capital structure? b. 1. What is Fish Chips's present value cost of owning the computer? (Hint: Set up a table whose bottom line is a time line" that shows the cash flows over the period t = 0 to t = 4. Then find the PV of these cash flows, or the PV cost of owning.) 2. Explain the rationale for the discount rate you used to find the PV. c. 1. What is Fish Chipss present value cost of leasing the computer? (Hint: Again, construct a time line.) 2. What is the net advantage to leasing? Does your analysis indicate that the firm should buy or lease the computer? Explain. d. Now assume that Millon believes that the computers residual value could be as low as 0 or as high as 250,000, but she stands by 125,000 as her expected value. She concludes that the residual value is riskier than the other cash flows in the analysis, and she wants to incorporate this differential risk into her analysis. Describe how this can be accomplished. What effect will it have on the lease decision? e. Millon knows that her firm has been considering moving its headquarters to a new location, and she is concerned that these plans may come to fruition prior to the expiration of the lease. If the move occurs, the company would obtain new computers; hence, Millon would like to include a cancellation clause in the lease contract. What effect would a cancellation clause have on the risk of the lease?
The CaseWestern Trucking Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows.Lease: The leasing arrangement requires BEGINNING of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase: If the firm purchases the machine, its cost is $80,000 will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years. Determine the after-cash outflow for Western Trucking under each alternative.
The CaseWestern Trucking Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows.Lease: The leasing arrangement requires BEGINNING of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase: If the firm purchases the machine, its cost is $80,000 will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years. Which alternative-lease or purchase would you recommend? Justify.
Western Trucking Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows. Lease: The leasing arrangement requires BEGINNING of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase: If the firm purchases the machine, its cost is $80,000 will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years. Find the present value the after- tax cash outflow for each alternative using the after tax cost of debt.
Western Trucking Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows. Lease: The leasing arrangement requires BEGINNING of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase: If the firm purchases the machine, its cost is $80,000 will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years. QUESTIONS Determine the after-cash outflow for Western Trucking under each alternative. Find the present value the after- tax cash outflow for each alternative using the after tax cost of debt. Which alternative-lease or purchase would you recommend? Justify.
Western Truckling Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows. Lease: The leasing arrangement requires beginning of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase: If the firm purchases the machine, its cost is $80,000 which will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years. Since the firm own the asset, it has to bear maintenance cost of $3500 yearly. Determine the after-cash outflow for Western Trucking under each alternative.
The Case Western Truckling Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows. Lease: The leasing arrangement requires beginning of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase: If the firm purchases the machine, its cost is $80,000 which will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years. Since the firm own the asset, it has to bear maintenance cost of $3500 yearly. Qustion Find the present value the after- tax cash outflow for each alternative using the after tax cost of debt.
The Case Western Truckling Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows. Lease: The leasing arrangement requires beginning of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase:    If the firm purchases the machine, its cost is $80,000 which will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years.   Since the firm own the asset, it has to bear maintenance cost of $3500 yearly.Question Which alternative-lease or purchase would you recommend? Justify
The Case Western Truckling Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows. Lease: The leasing arrangement requires beginning of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase:    If the firm purchases the machine, its cost is $80,000 which will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years.   Since the firm own the asset, it has to bear maintenance cost of $3500 yearly. Question Determine the after-cash outflow for Western Trucking under each alternative.
The Case Western Truckling Company (a US based company) needs to expand its facilities. In order to do so, the firm must acquire a machine costing $80,000. The machine can be leased or purchased. The firm is in the 40% tax bracket, and its after tax cost of debt is 5.4%. The terms of lease and purchase plans are as follows. Lease: The leasing arrangement requires beginning of year payment of $16,900 over five years. The lessee will exercise its option to buy the asset for $20,000, to be paid along with the final lease payment. Purchase:    If the firm purchases the machine, its cost is $80,000 which will be financed with a 5-year, 9% loan (pre-tax). The machine will be depreciated on a straight-line basis for 5 years.   Since the firm own the asset, it has to bear maintenance cost of $3500 yearly. QUESTIONS Determine the after-cash outflow for Western Trucking under each alternative.   Find the present value the after- tax cash outflow for each alternative using the after…