PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Chapter 25, Problem 11PS
Technological change and operating leases Look at Table 25.1. How would the initial break-even operating lease rate change if rapid technological change in limo manufacturing reduces the costs of new limos by 5% per year? (Hint: We discussed technological change and equivalent annual costs in Chapter 6.)
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A firm is considering whether to buy specialized equipment that would cost $200,000 and have annual costs of $15,000. After 5 years of operation, the equipment would have no salvage value. The same equipment can be leased for $50,000 per year (annual costs included in the lease), payable at the beginning of each year. If the firm uses an interest rate of 5% per year, the annual cost advantage of leasing over purchasing is nearest what value? (a) $2494 (b) $8694 (c) $11,200 (d) $12,758
A bulldozer can be purchased for $380,000 and used for 6 years, when its salvage value is 15% of the first cost. Alternatively, it can be leased for $60,000 a year. (Remember that lease payments occur at the start of the year.) The firm’s interest rate is 12%. (a) What is the interest rate for buying versus leasing? Which is the better choice? (b) If the firm will receive $65,000 more each year than it spends on operating and maintenance costs, should the firm obtain the bulldozer? What is the rate of return for the bulldozer using the best financing plan?
Using NPV analysis would the which would be more profitable "As a almond producer you are faced with a choice leasing or purchasing equipment, would it be more profitable to purchase a almond sweeper for $90,000, or leasing the equipment out Over 20 years If the lease payment was $3,000 yearly.
Chapter 25 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Operating leases Acme has branched out to rentals...Ch. 25 - Prob. 9PSCh. 25 - Prob. 10PSCh. 25 - Technological change and operating leases Look at...
Ch. 25 - Prob. 12PSCh. 25 - Taxes and leasing Look again at the bus lease...Ch. 25 - Taxes and leasing In Section 25-4 we showed that...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Prob. 18PSCh. 25 - Valuing leases The Safety Razor Company has a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 22PSCh. 25 - Valuing leases Suppose that the Greymare lease...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
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- Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $90,000. HPB will need it for only 3 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 3 years with $10,000 lease payments at the end of each year. HPB's cost of debt is 10%. Answer the following questions. (Hint: See Table 19-1.) What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ $arrow_forwardContinuing with the example 4.8, once Cesar had selected generator 2 to purchase, he approached the manufacturer with the concerns that the first cost was too high and the expected life was too short. He was offered a lease arrangement for 6 years with a $20,000 annual cost and an extra $20,000 payment in the first and last years to cover installation and removal costs. Determine if generator 2 or the lease arrangement is better at 12% per year.arrow_forwardFor firm needs 1,000,000 barrels of WTI crude oil 6 months from today. You enter into a forward contract to receive WTI crude oil 6 months from today. The current price of a barrel of WTI is $44, the cost of storage for 6-months is $3.9, and the risk-free rate of return is 2% for 6 months. The cost of storage needs to be paid today. What will the maximum contracted price today be for the payment to be made 6-months from now for 1,000,000 barrel delivery? You will pay the counterparty the contracted price 6-months from now. Assume zero transaction costs.arrow_forward
- Kuehner estimates that it can lease Parker Road Plaza for $18.50 per square foot (GLA) base rent with a 3 percent overage on gross sales in excess of $200 per square foot (GLA). The company expects rents to increase by 5 percent per year during the lease period and tenant reimbursements to run $8 per square foot (GLA) and to increase at the same rate as rents. Kuehner expects to have the shopping center 70 percent leased during the first year of operation After that, vacancies should average about 5 percent per year. The vacancy losses should be cal-culated on the entire gross potential income, which includes minimum rents, percentage rents and tenant reimbursements. Sales, which are expected to average $210 per square foot (GLA) for the first year of operation, should grow at 6 percent per year. The operating expenses are expected to average $14 per square foot of GLA for the first year and will increase at the same rate as the rents. Kuehner will collect an additional 5 percent of…arrow_forwardBuy vs. Lease: You are a newly appointed CFO of a high frequency trading firm. You need a supercomputer to perform all trading calculations. The project will last for ten years. You are asked to determine if it is best to Lease or Buy the supercomputer. These options are: Lease: The cost to lease a supercomputer is $50,000 per year from T=1 to T=10. The lease includes all maintenance costs. Buy: The supercomputer costs $250,000 today at T=0. The maintenance cost will be $1,000 per year for T=1 to T=10. At year T=10 you will be able to sell the supercomputer for $100,000. Which option would you select if R=5%? Show all work. Which option would you select if R=20%? Show all work? What interest rate R results in the same present value for the Buy and Lease options?arrow_forwarda. what is the EOQ for a firm that sells 5,000 units when the cost of placing an order is $5 and the carrying cost are $3.50 per unit? b. how long will the EOQ last? how many orders are placed annually? c. as a result of lower interest rates, the finnancial manager determines the carrying cost are now $1.80 per unit. what are the new EOQ and annual number of objects?arrow_forward
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