PRINCIPLES OF CORPORATE FINANCE EBK COD
13th Edition
ISBN: 9781260918250
Author: BREALEY
Publisher: INTER MCG
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Chapter 25, Problem 23PS
Summary Introduction
To determine: The way in which person X advise person A, CEO of company C.
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Mauer Mining Company leases a special drilling press with annual payments of $100,000. The contract calls for rent payments at the beginning of each year for a minimum of 6 years. Mauer Mining can buy a similar drill for $490,000, but it will need to borrow the funds at 10%.
a. Determine the present value of the lease payments at 10%.
b. Should Mauer Mining lease or buy this drill?
Western Plants Co. (Western) leased a new forklift on January 1. The lease agreement is for eight years, with an annual payment of $4,880 due at the beginning of each year. Western has the option to buy the forklift at the end of the lease for $5,500, which is the estimated market value at that time, Alternatively, the company may choose to return the forklift with no penalty. At this point, management has not decided whether to buy the asset at the end of the lease. The forklift would likely have another two years of useful life if purchased at the end of the lease term
Westen had the opportunity to purchase the forklift from the dealer for $33,856 but chose to lease instead. The company would have had to borrow from the bank to finance the purchase. The interest rate at that time was 7%. The rate implicit in the lease is 7.7%. The cost of the forklift to the dealer is $25,000
Required:
a) Assuming Western reports under IFRS. prepare the journal entries for the first year of the…
Lease versus Buy
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. (The depreciation rates for Year 1 through Year 4 are equal to 0.3333, 0.4445, 0.1481, and
0.0741.)
2. Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance.
3. The firm's tax rate is 25%.
4. The loan would have an interest rate of 16%. 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 $390,000 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 $200,000 at
the end of the 4th year.
a. What is the cost of owning? Enter your answer…
Chapter 25 Solutions
PRINCIPLES OF CORPORATE FINANCE EBK COD
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Inflation and operating leases In Problem 7, we...Ch. 25 - Technological change and operating leases Look at...Ch. 25 - Valuing financial leases Look again at Problem 7....Ch. 25 - Valuing Financial Leases Look again at the...
Ch. 25 - Valuing financial leases Look again at the bus...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Valuing financial leases Nodhead College needs a...Ch. 25 - Valuing financial leases The Safety Razor Company...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 23PSCh. 25 - Valuing leases Suppose that the Greymare lease...
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