Vijay Witten Entertainment is considering buying a machine that costs $562,000. The machinewill be depreciated over four years by the straight-line method and will be worthless atthat time. The company can lease the machine with year-end payments of $175,000. Thecompany can issue bonds at an interest rate of 7 percent. The corporate tax rate is 22percent.What is the NAL of the lease? (A negative answer should be indicated by a minus sign.Do not round Intermediate calculations and round your answer to 2 decimal places,e.g., 32.16.)NAL

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Witten Entertainment is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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Witten Entertainment is considering buying a machine that costs $561,000. The machine will be depreciated over four years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments of $174,000. The company can issue bonds at an interest rate of 6 percent. The corporate tax rate is 21 percent. What is the NAL of the lease? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NAL
Nu-Tek is considering leasing some equipment for 4 years with equal annual lease payments. The equipment would cost $74,000 to buy and would be depreciated straight-line over 4 years to a zero-salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 7.3 percent. The lessee does not expect to owe taxes for several years while the lessor's tax rate is 21 percent. What is the minimum lease payment that will be acceptable to both parties? (Do not round your intermediate calculations. Round only your final answer up to 2 decimal places, if necessary. Note: Your final answer must be in dollars without the $ sign at the beginning)
The smiths are not sure whether they should buy or lease equipment. A five year lease could be arranged with annual lease payment of 5000$ payable at beginning of each year. The tax shield from lease payment is available at year end. The company tax rate is 25%. The equipment would cost $25000 and has a five year expected lifespan, and no residual value is expected. if purchased, asset would be financed through a term loan at 12%. The loan calls for equally payment to be made at end of end year for five years. Suppose that the equipment would qualify for CCA on a straight-line basis over five years. Required: 1. Calculate the cash flows for each financing alternate. 2. Which alternative is the most economical.
Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $5700 per year. The equipment costs $29000 and has a useful life of 7 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 7 years and dispose of it for nothing. They can lease it for 7 years with an annual lease payment of $8000. If the after-tax interest rate on secured debt issued by company A is 7% and tax rate is 25%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places) Answer: -18233.59
ABC Inc. is considering leasing some equipment for 10 years with equal lease payments at the end of each year. The equipment would cost $200,000 to buy and would be depreciated straight-line over 10 years to a zero-salvage value. The applicable cost of debt is 10%. The lessee does not expect to owe taxes for the next 15 years while the lessor's tax rate is 21%. What is the Lessor's minimum acceptable lease payment? (Do not round your intermediate calculations. Round only your final answer to 2 decimal places, if necessary. Note: Your final answer must be in dollars without the $ sign at the beginning)
Your firm is considering leasing a new computer. The lease lasts for 4 years. The lease calls for 5 payments of $450 per year with the first payment occurring immediately. The computer would cost $5,900 to buy and would be depreciated using the straight-line method to zero salvage over 4 years. The firm can borrow at a rate of 7%. The corporate tax rate is 21%. What is the NPV of the lease?
Al-Tek is considering leasing some new equipment for 5 years with annual payments. The equipment would cost $115,000 to buy and would be depreciated straight-line to a zero salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 8 percent. The lessee does not expect to owe taxes for several years. The lessor’s tax rate is 35 percent. What is the minimum lease payment that will be acceptable to both parties?
WellyWeta workshop is considering buying a machine that costs $545,000. The machine will bedepreciated over five years by the straight-line method and will be worthless at that time. Thecompany can lease the machine with year-end payments of $140,000. The company can issue bondsat an interest rate of 7 percent. If the corporate tax rate is 21 percent, should the company buy orlease?
WellyWeta workshop is considering buying a machine that costs $545,000. The machine will bedepreciated over five years by the straight-line method and will be worthless at that time. Thecompany can lease the machine with year-end payments of $140,000. The company can issue bondsat an interest rate of 7 percent. If the corporate tax rate is 21 percent, should the company buy orlease? hand write please
Al-Tek is considering leasing some equipment for 5 years with equal annual lease payments. The equipment would cost $200,000 to buy and would be depreciated straightline to a zero salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 7 percent. The lessee's tax rate is 20 percent while the lessor's tax rate is 27 percent. What is the maximum lease payment All-Tek would be willing to pay for both parties?
Kohers Inc is considering a leasing arrangement to finance some manufacturing tools that it needs for the next 3 years. The tools will be obsolete and worthless after 3 years. The firm will depreciate the cost of the tools on a straight-line basis over their 3 year life. It can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,100,000 each and lease them. The loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. The firm's tax rate is 40%. Annual maintenance costs associated with ownership are estimated at $240,000 but this cost would be borne by the lessor if it leases. What is the net advantage to leasing(NAL), in thousands? (Suggestion:Delete 3 zeros from dollars and work in thousands)
Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow by issuing debt at a rate of 8%. The corporate tax rate is 30%. What would the after-tax cash flow in year 9 be if the asset had a residual value of $500 (ignoring any possible risk differences)? Group of answer choices None of these -$605 -$1,455 -$1,305 -$955

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