Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 7, Problem 2TPC
To determine
Identify whether Company C should lease or purchase the equipment to minimize the after-tax cost.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The tax on $2,600 of profit on a capital asset is deferred. A person in a 40 percent tax bracket will have to pay what amount of taxes when the asset is sold? (Round your answer to the nearest whole number.)
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.
Chapter 7 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 7 - Prob. 1QPDCh. 7 - Assume that Congress enacted legislation requiring...Ch. 7 - Prob. 3QPDCh. 7 - To what extent do cost recovery deductions based...Ch. 7 - Can a firm have a negative tax basis in an asset?Ch. 7 - Prob. 6QPDCh. 7 - Corporation J manufactures electrical appliances....Ch. 7 - Identify the tax and nontax issues that firms must...Ch. 7 - Identify four possible differences in the...Ch. 7 - Prob. 10QPD
Ch. 7 - Prob. 11QPDCh. 7 - Prob. 12QPDCh. 7 - Prob. 13QPDCh. 7 - Prob. 14QPDCh. 7 - Prob. 15QPDCh. 7 - Prob. 16QPDCh. 7 - Prob. 17QPDCh. 7 - Prob. 18QPDCh. 7 - Prob. 1APCh. 7 - Assuming a 21 percent tax rate, compute the...Ch. 7 - Determine the tax basis of the business asset...Ch. 7 - ABC Company purchased business property several...Ch. 7 - Early this year, ZeZe Inc. paid a 52,000 legal fee...Ch. 7 - In year 1, Firm A paid 50,000 cash to purchase a...Ch. 7 - Prob. 7APCh. 7 - Hansen Company, a cash basis taxpayer, paid 50,000...Ch. 7 - In year 0, Jarmex paid 55,000 for an overhaul of a...Ch. 7 - Prob. 10APCh. 7 - Refer to the facts in problem 10. In its second...Ch. 7 - In its first year of operations, Lima Company...Ch. 7 - Prob. 13APCh. 7 - Herelt Inc., a calendar year taxpayer, purchased...Ch. 7 - Knute Company purchased only one asset during its...Ch. 7 - Prob. 16APCh. 7 - Suber Inc., a calendar year taxpayer, purchased...Ch. 7 - Prob. 18APCh. 7 - Prob. 19APCh. 7 - On May 12, 2018, Nelson Inc. purchased eight...Ch. 7 - In March 2018, Jones Company purchased a Mercedes...Ch. 7 - Margo, a calendar year taxpayer, paid 580,000 for...Ch. 7 - In 2019, Firm L purchased machinery costing 21,300...Ch. 7 - In 2018, Company W elected under Section 179 to...Ch. 7 - Prob. 25APCh. 7 - At the beginning of its 2019 tax year, Hiram owned...Ch. 7 - In April 2019, Lenape Corporation completed...Ch. 7 - Ajax Inc. was formed on April 25 and elected a...Ch. 7 - Prob. 29APCh. 7 - Mr. Z, a calendar year taxpayer, opened a new car...Ch. 7 - Prob. 31APCh. 7 - Prob. 32APCh. 7 - Prob. 33APCh. 7 - Prob. 34APCh. 7 - Prob. 35APCh. 7 - Prob. 36APCh. 7 - Prob. 37APCh. 7 - Prob. 1IRPCh. 7 - Prob. 2IRPCh. 7 - Prob. 3IRPCh. 7 - Prob. 4IRPCh. 7 - Prob. 5IRPCh. 7 - Prob. 6IRPCh. 7 - Prob. 7IRPCh. 7 - Prob. 8IRPCh. 7 - Prob. 9IRPCh. 7 - Prob. 10IRPCh. 7 - Prob. 1RPCh. 7 - Prob. 2RPCh. 7 - Prob. 3RPCh. 7 - Prob. 4RPCh. 7 - Prob. 1TPCCh. 7 - Prob. 2TPCCh. 7 - Prob. 3TPCCh. 7 - Prob. 4TPC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- 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?arrow_forwardRed Bull F1 plans to purchase or lease $277,764 worth of equipment. Ifpurchased, the equipment will be depreciated on a straight-line basis overfive years, after which it will be worthless. If leased, the annual leasepayments will be $42,922 per year at the end of every year for five years.Assume Red Bull F1's borrowing cost is 8%, the tax rate is 35%, and thelease qualifies as a true tax lease.If Red Bull F1 purchases the equipment, what is the amount of the lease equivalent loan?arrow_forwardSpecialty Corp is a cash basis calendar-year taxpayer. The corporation has a 25 percent marginal tax bracket this year. It will receive an additional $5,000 this year if it bills its customers at the beginning of December. But if it bills its customers at the end of December, it will not receive the $5,000 until January of next year.  If Specialty Corp’s marginal tax rate next year is estimated to be 15 percent, when would the company most likely bill its customers?   Specialty Corp. would bill its customers at the beginning of December.   Specialty Corp would bill its customers in the middle of December   Specialty Corp would bill its customers at the end of December.   It will not matter when the company bills its customers for tax purposesarrow_forward
- Specialty Corp is a cash basis calendar-year taxpayer. The corporation has a 25 percent marginal tax bracket this year. It will receive an additional $5,000 this year if it bills its customers at the beginning of December. But if it bills its customers at the end of December, it will not receive the $5,000 until January of next year. If Specialty Corp’s marginal tax rate next year is estimated to be 34 percent, when would the company most likely bill its customers? Specialty Corp. would bill its customers at the end of December.   Specialty Corp. would bill its customers at the beginning of December.   Specialty Corp. would defer billing its customers until next year.   Specialty Corp. would bill its customers in the middle of December.arrow_forwardThe company is planning to provide services to a client and receives $90,000 in year 2020. The client has the option to pay the money in the current year or over the next 3 years. Accordingly, Pioneer has the option of reporting the profit in the current year or over the next 3 years. Assume that Pioneer’s uses 9% discount rate and its marginal tax rate is 35% in year 2020 and 40% in the next three years. Which option should the company select? And whyarrow_forwardXYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 35 percent of their salary for five years. For purposes of this problem, ignore payroll taxes in your computations. (Use Table 1.) Note: Round your intermediate calculations and final answers to the nearest whole dollar amount. a. Assume XYZ has a marginal tax rate of 21 percent for the foreseeable future and earns an after-tax rate of return of 9 percent on its assets. Joel Johnson, XYZ's VP of finance, is attempting to determine what amount of deferred compensation XYZ should be willing to pay in five years that would make XYZ indifferent between paying the current salary of $17,700 and paying the deferred compensation. What amount of deferred compensation would accomplish this objective? b. Assume Julie, an XYZ employee, has the option of participating in XYZ's deferred compensation plan. Julie's marginal tax rate is 37 percent, and she expects the rate to remain constant…arrow_forward
- Easter Corporation will replace one of its assets with an updated model. The current asset was purchased two years ago at a cost of $70,000. It has been depreciated under MACRS using a five-year recovery period. The company can sell this existing asset for $30,000. The new asset is going to cost $80,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on both ordinary income and capital gains, the initial investment will be equal to what amount after adjusting for taxes?arrow_forwardJellibean Corporation will replace one of its existing assets with a newer type. The existing asset was purchased two years ago at a cost of $30,000 and was being depreciated under MACRS using a five-year recovery period. This existing asset can be sold for $25,000. The new asset that they plan to buy will cost $75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on both ordinary income and capital gains, the initial investment will be equal to what amount after adjusting for taxes?arrow_forwardJudgo Corporation is attempting to determine whether it should lease or purchase equipment. The firm is in the 40% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: Lease there will be annual end-of-year lease payments of $25,200 each year over the 3-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will be able to exercise its option to purchase the asset for $5,000 at termination of the lease. Purchase The equipment which costs $60,000 can be financed completely with a 14% loan that requires annual end-of-year payments of $25,844 for 3 years. The firm in this case will depreciate the equipment under MACRS using a 3-year recovery period. (33% in year 1, 45% in year 2 and 15% in year 3). The firm will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the…arrow_forward
- [The following information applies to the questions displayed below.] XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 40 percent of their salary for five years. For purposes of this problem, ignore payroll taxes in your computations. Note: Round your intermediate calculations and final answers to the nearest whole dollar amount. a. Assume XYZ has a marginal tax rate of 21 percent for the foreseeable future and earns an after-tax rate of return of 8 percent on its assets. Joel Johnson, XYZ's VP of finance, is attempting to determine what amount of deferred compensation XYZ should be willing to pay in five years that would make XYZ indifferent between paying the current salary of $10,000 and paying the deferred compensation. What amount of deferred compensation would accomplish this objective?arrow_forwardThomas Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 21% . The company expects to use the equipment for 4 years, with no expected salvage value. The purchase price is $2 million and MACRS depreciation, 3-year class, will apply. If the company enters into a 4-year lease, the lease payment is $460,000 per year, payable at the beginning of each year. If the company purchases the equipment it will borrow from its bank at an interest rate of 11% . a. Calculate the cost of purchasing the equipment with debt.b.Calculate the cost of leasing the equipment.C.Calculate the net advantage to leasing. Should the company purchase or lease the equipmentarrow_forwardRiverside Inc. plans to purchase or lease $220,000 worth of new equipment. If purchased, the equipment will be depreciated on a straight-line basis over five years, after which it will be worthless. If leased, the annual lease payments will be $55,000 per year for five years. Assume Riverside’s borrowing cost is 8%, its tax rate is 35%, and the lease qualifies as a true tax lease. If Riverton purchases the equipment, what is the amount of the lease-equivalent loan?  a. $292,884 b. $192,488 c. $197,358 d. $195,70 0 e. $190,237arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIndividual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT