FUNDAMENTALS OF FINANCIAL ACCOUNTING
6th Edition
ISBN: 9781260823875
Author: PHILLIPS
Publisher: MCGRAW-HILL CUSTOM PUBLISHING
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Chapter C, Problem 1PB
To determine
Determine the option to be chosen and the reason for taking the decision.
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The X Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs and services. If the machine is purchased, a comparable repair and service contract can be obtainedfor $1,000 per year. The salesperson of the business machine firm has indicated that the expected useful service life of this machine is five years, with zero market value, but the company is not sure how long the machine will be needed. If the machine is rented, the company can cancel the lease at the end of any year. Assuming an income tax rate of 25%, a straight-line depreciation charge of $20,000 for each year the machine is kept, and an after-tax MARR of 10%, prepare an appropriate analysis to help the firm decide whether it is more desirable to purchase or rent.
Phoenix Products Inc. requires a new machine to produce a part for a solar air conditioner. Two companies have submitted bids, and you have been assigned the task of choosing one of the machines. Cash flow analysis indicates the following:
Year
Machine A
Machine B
0
−$1,000
−$1,000
1
0
417
2
0
417
3
0
417
4
1,938
417
If the required rate of return for Phoenix Products is 5 percent, which of the following is the most valid statement?
Group of answer choices
The IRRA < IRRB, therefore accept Machine B.
The NPVA < NPVB, therefore accept Machine B.
The IRRA > IRRB, therefore accept Machine A.
The NPVA > NPVB, therefore accept Machine A.
None of these.
Executives at Microsoft are interested to get into the drone delivery business.They decide to acquire "FLY" corporation."FLY" has been operating a drone delivery service for 4 years now and they are the most successful operators in the market. Microsoft executives offer "FLY" two purchase options: the first option is one $40 million lump sum payment.
the second option is paying five annual payments of $10 million over the next five years.
a)If the annual interest rate is 7% ,find the present value of both options?
b) Evaluate the net present values of both option and identify which option is more cost effective for Microsoft ?
Chapter C Solutions
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Ch. C - Prob. 1QCh. C - Prob. 2QCh. C - Which of the following is most likely to be an...Ch. C - Prob. 4QCh. C - Prob. 5QCh. C - Prob. 6QCh. C - Prob. 7QCh. C - You are saving up for a Mercedes-Benz SLR McLaren,...Ch. C - Prob. 2MCCh. C - Prob. 3MC
Ch. C - Prob. 4MCCh. C - Prob. 5MCCh. C - Assume you bought a car using a loan that requires...Ch. C - Assume you bought a car using a loan that requires...Ch. C - Which of the following statements is true? a. When...Ch. C - Prob. 9MCCh. C - Prob. 10MCCh. C - Prob. 1MECh. C - Prob. 2MECh. C - Prob. 3MECh. C - Prob. 4MECh. C - Prob. 5MECh. C - Prob. 6MECh. C - Prob. 7MECh. C - Prob. 8MECh. C - Prob. 9MECh. C - Prob. 10MECh. C - Prob. 11MECh. C - Prob. 12MECh. C - Prob. 1ECh. C - Prob. 2ECh. C - Prob. 3ECh. C - Prob. 4ECh. C - Prob. 5ECh. C - Computing Bond Issue Proceeds and Issue Price Your...Ch. C - Computing Missing Present or Future Values...Ch. C - Prob. 1CPCh. C - Prob. 2CPCh. C - Prob. 3CPCh. C - Prob. 4CPCh. C - Prob. 1PACh. C - Recording Equipment Purchase with Two-Year Note...Ch. C - Prob. 3PACh. C - Prob. 4PACh. C - Prob. 1PBCh. C - Recording Equipment Purchase with Two-Year Note...Ch. C - Prob. 3PBCh. C - Prob. 4PB
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