11)A new robotic welder can be leased for 5 years with annual payments of $300,000 withthe first payment occurring at lease inception. The system would cost $1,050,000 to buy andwould be depreciated straightline to a zero salvage value. The actual salvage value is zero. Thefirm can borrow at 8 percent and has a tax rate of 23 percent. What discount rate should be usedfor valuing the lease?A) 9.84 percentB) 19.72 percentC) 6.16 percentD) 8.00 percentE) 6.32 percent

Lease is kind of finance arrangement in which heavy equipments can used for payment for annual…

Answered: 11) A new robotic welder can be leased…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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Your landscaping company can lease a truck for $8,150.00 a year for 4 years. It can instead buy the truck for $23,388.56. The truck will be valueless after 4 years. a. What is the present value of the lease payments, If the interest rate your company can earn on its funds is 11.00%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value b. Is it cheaper to buy or lease? buy lease
15. Your landscaping company can lease a truck for $8,000 a year (paid at year-end) for 6 years. It can buy the truck for $40,000. The truck will be valueless after 6 years. a. If the interest rate your company can earn on its funds is 7%, is it cheaper to buy or lease? b. If the lease payments are an annuity due, is it cheaper to buy or lease?
Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?
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?
1. You have a choice of leasing a truck for six years at $9,000/year, paid at the end of each year, or buying the truck for $44,000. At the end of six years the truck would be worthless. The interest rate is 5.5%. Would you lease or buy? 2. A similar situation as #1: lease for $9,000/year, or buy for $44,000, but if you buy the truck, and pay to maintain the truck (e.g. change oil and other fluids, replace windshield wipers, belts, tires, etc.), which are $500/year, paid at the end of each year, then at the end of six years, the truck would be worth $2,000 and you could sell the truck. Would you lease or buy?
1. You are planning on leasing a drying oven for your production line. The oven lease terms involve an initial payment of $1000 when the oven is delivered, an annual payment of $2000 for seven years, and a final recovery payment of $1000 when the leasing company takes the oven back at the end of the lease. Your corporate cost of money is 4% and the leasing company is responsible for all maintenance on the oven. What is the equivalent (NPV) value of this cashflow today? 1.a The oven you are leasing (from question 1), is expected to generate a cost savings of $5000 per year over the older oven you are currently using. What is the equivalent NPV value of the cashflow when these savings are included?
Antique Accents projects that demand for its services will rise for a period of four years before subsiding. It can lease additional communication equipment for $1,300 at the beginning of every quarter year for four years. Alternatively, it can purchase the equipment for $22,500 at 3.50% compounded quarterly. The salvage value of the equipment after four years is expected to be $3,900. a) Which option would you recommend? O Purchase the equipment. O Lease the equipment. b) In current dollars, how much better is that option? For full marks your answer(s) should be rounded to the nearest cent. Current dollars saved = $ 0.00
A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90% loan for 25 years at 9% interest and 1 point and the second is a 95% loan for 25 years at 9.25% interest and 1 point. Assuming the loan will be held to maturity, what is the incremental cost of borrowing the extra money? O 12.01% O 14.34% 13.50% O 13.66%
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?
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is $14,000, and its projected residual value at the end of four years is $3,000. Monthly payment $250 Capital cost reduction $1,000 Disposition charge $200 Other things being equal, one would want to finance this car rather than take this lease if the finance cost were less than?
.A P2500 computer system can be leased for 79 per month for 3 years. After 3 years, it can be purchased for P750. This is also the salvage value if the system was purchased originally. What is the effective annual rate for leasing the computer?
where a $70,000 loan could be assumed at a 9 percent rate with a remaining term of 15 years and payments of $709.99 per month. Recall that a comparable property with no special financing available would sell for $100,000 and could be financed at a market rate of 11 percent. How much more than $100,000 could the buyer pay if he or she chose to assume the 9 percent loan and still be as well off as if the property were purchased for $100,000 and financed with an 11 percent loan? We first find the present value of the payments that can be assumed using the market rate. This is the market value or cash equivalent value of the assumable loan. It represents the price at which the old loan could be sold to a new lender/investor.

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