The Asset Privatization Trust had put up for sale a machine tools manufacturing plant. There were two bidders with the following proposals (a) Bidder A offered P10OM payable 20% down payment, the balance payable P1M annually for 8 years, (b) Bidder B offered P9M, payable P2M down payment, the balance payment payable P 0.5M semi-annually for 7 years, which bid is more beneficial to APT, if money is worth 10% effective?

The Asset Privatization Trust had put up for sale a machine tools manufacturing plant. There were two bidders with the following proposals (a) Bidder A offered P10OM payable 20% down payment, the balance payable P1M annually for 8 years, (b) Bidder B offered P9M, payable P2M down payment, the balance payment payable P 0.5M semi-annually for 7 years, which bid is more beneficial to APT, if money is worth 10% effective?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments

Section: Chapter Questions

Problem 3MC: Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of...

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Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of 150,000 and will operate for five years. The cash flows associated with these projects are as follows: Statens required rate of return is 10%. Using the net present value method and the present value table provided in Appendix A, which of the following actions would you recommend to Staten? a. Accept Project X and reject Project Y. b. Accept Project Y and reject Project X. c. Accept Projects X and Y. d. Reject Projects X and Y.
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?
Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of 5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. The present value of an ordinary annuity of 1 at 15% for 5 periods is 3.35. The future amount of an ordinary annuity of 1 at 15% for 5 periods is 6.74. The present value of 1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine? a. 12,500 b. 16,750 c. 25,000 d. 33,700
The Asset Privatization Trust had put up for sale a machine tools manufacturing plant. There were two bidders with the following proposals (a) Bidder A offered P10M payable 20% down payment, the balance payable P1M annually for 8 years, (b) Bidder B offered P9M, payable P2M down payment, the balance payment payable P 0.5M semi-annually for 7 years, which bid is more beneficial to APT, if money is worth 10% effective?
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