Nikul Nodhead College needs a new computer. It can either buy it for $350,000 or lease it from Compulease. The lease terms requireNodhead to make six annual payments (prepaid) of $82,000. Nodhead pays no tax. Compulease pays tax at 35%. Compulease candepreciate the computer for tax purposes straight-line over five years. The computer will have no residual value at the end of year 5.The interest rate is 8%.a. What is the NPV of the lease for Nodhead College?Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer tothe nearest whole number.b. What is the NPV for Compulease?Note: Do not round intermediate calculations. Round your answer to the nearest whole number.c. What is the overall gain from leasing?Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer tothe nearest whole number.a. Net present valueb. Net present valuec. Overall gain$ (59,402)

The problem presented involves a leasing scenario where Nodhead College has the option to either…

Answered: Nodhead College needs a new computer.…

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion

Section: Chapter Questions

Problem 50P

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Big Sky Mining Company must install 1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply. (1) The machinery falls into the MACRS 3-year class. (2) Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance. (3) The firms tax rate is 25%. (4) The loan would have an interest rate of 15%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4. (5) The lease terms call for 400,000 payments at the end of each of the next 4 years. (6) Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of 250,000 at the end of the 4th year. a. What is the cost of owning? b. What is the cost of leasing? c. What is the NAL of the lease?
During the last five months of the year, Dwana opens a new Internet telecommunications business called Dwan-Com. Dwan-Com bills 50,000 of revenues, but receives only 40,000 cash. Dwan-Com incurs 3,000 of supply expenses, and 41,000 of labor costs. Dwan-Com pays for 2,200 of the supplies and 38,000 of the labor costs in the current year. a. What is Dwan-Coms taxable income if it elects the cash method of accounting? b. What is Dwan-Coms taxable income if it elects the accrual method of accounting? c. What method of accounting do you recommend that Dwan-Com elect?
Nodhead College needs a new computer. It can either buy it for $250,000 or lease it from Compulease. The lease terms require Nodhead to make 6 annual payments (prepaid) of $58,000. Nodhead pays no tax. Compulease pays tax at 30%. Compulease can depreciate the computer for tax purposes at a CCA rate of 25%, and will close the asset pool at the end of the sixth year. The first CCA tax saving is available in year 0. The computer will have no residual value at the end of year 5. The interest rate is 9%. a. What is the NPV of the lease for Nodhead College? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ b. What is the NPV for Compulease? (Round your answer to the nearest dollar. Use minus sign to enter negative NPV, if any.) NPV$ c. What is the overall gain from leasing? (Round your answer to the nearest dollar. Use minus sign to enter loss, if any.) Overall gain (loss)
Your company has purchased equipment (for $50,000) that will reduce materials and labor costs by $14,000 each year for 10 years. After 10 years, there will be no further need for the machine, and because the machine is specially designed, it will have no MV at any time. The IRS, however, has ruled that you must depreciate the equipment on a SL basis with a tax life of five years. a. If the effective income tax rate is 21%, draw the after - tax cashflow diagram
Your company has purchased equipment (for $50,000) that will reduce materials and labor costs by $14,000 each year for 10 years. After 10 years, there will be no further need for the machine, and because the machine is specially designed, it will have no MV at any time. The IRS, however, has ruled that you must depreciate the equipment on a SL basis with a tax life of five years. a. If the effective income tax rate is 21%, draw the after-tax cashflow diagram Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.

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