Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent. To determine: The consolidated NPV and IRR of leasing.

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Answer 1

Question

Chapter 19, Problem 7MC

a)

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent.

To determine: The consolidated NPV and IRR of leasing.

b)

Summary Introduction

To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

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Firm A is considering leasing equipment. The equipment will provide $2.8 million in annual pre-tax cost savings. The cost of leasing is $8.78 million and the equipment will be depreciated straight-line to zero over five years. Assume a tax rate of 21% and a borrowing rate of 7%. Firm B has offered to lease this equipment for payments of $1.95 million per year. Assume that payments for the lease are made at the start of the year. i) What is the maximum lease payment that would be acceptable to Firm A? ii) Suppose now Firm B requires Firm A to pay a $600,000 security deposit at the inception of the lease, and this amount is refunded at the end of the lease. If the lease payment is still $1.95 million. Is it advantageous for Firm A to lease the equipment now?

Next Corporation needs a piece of equipment that costs $270 million. Next can either lease the equipment or borrow $270 million from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. Assume that Next’s tax rate is 35% and that the equipment’s depreciation would be $90 million per year. If the company leased the asset on a 3-year lease, the payment would be $105 million at the beginning of each year. If Next borrowed and bought, the bank would charge 12% interest on the loan. In either case, the equipment is worth nothing after 3 years and will be discarded. Should Next lease or buy the equipment? (solve in excel)

Use the following information for the next two problems: A company is considering whether to lease or purchase an aircraft to transport its executives between company facilities and the main administrative headquarters. The firm is in the 40 percent tax bracket and its after-tax cost of debt is 7 percent. The estimated after-tax cash flows for the lease and purchase alternatives are given below: Cash Flows After-Tax End of Year Lease (cash flows are all negative) PurchaseYrs 1-4 cash flows are negative; Year 5 is positive. 1. (40,000) (68,454) 2. (40,000) (59,110) 3. (40,000) (63,596) 4. (40,000) (66,633) 5. (40,000) 30,056 1. Given the above cash outflows, calculate the present value of the after-tax cash flows of the lease alternative using the after-tax cost of debt. 2. Given the above cash outflows: a) Calculate the present value of the after-tax cash flows of the purchase alternative using the after-tax cost…

Answer 2

Question

Chapter 19, Problem 7MC

a)

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent.

To determine: The consolidated NPV and IRR of leasing.

b)

Summary Introduction

To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

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Answer 3

Question

Chapter 19, Problem 7MC

a)

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent.

To determine: The consolidated NPV and IRR of leasing.

b)

Summary Introduction

To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

Expert Solution & Answer

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Answer 4

Question

Chapter 19, Problem 7MC

a)

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent.

To determine: The consolidated NPV and IRR of leasing.

b)

Summary Introduction

To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

Expert Solution & Answer

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Answer 5

Chapter 19, Problem 7MC

a)

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent.

To determine: The consolidated NPV and IRR of leasing.

b)

Summary Introduction

To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

Answer 6

Chapter 19, Problem 7MC

a)

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent.

To determine: The consolidated NPV and IRR of leasing.

Answer 7

Chapter 19, Problem 7MC

a)

Summary Introduction

Case summary:

Company L has chosen to procure an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations, at that point either shows the data on a screen or stores it for afterward recovery by the firm’s brokers. The framework moreover licenses clients to call up current cites on terminals within the campaign. The gear costs $1,000,000, and, in the event that it was obtained, company L might get a term credit for the total buy cost at a 10 percent intrigued rate. In spite of the fact that the gear contains a six-year valuable life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year lesson. In the event that the framework was obtained, a 4-year upkeep contract can be obtained at a fetched of $20,000 per year, payable at the starting of each year. The hardware would be sold after 4 a long time, and the leading appraise of its leftover esteem at that time is $200,000. Be that as it may, since real-time show framework innovation is changing quickly, the real residual value is dubious. As an elective to the borrow-and-buy arrange, the gear producer educated Lewis that Solidified Renting would be willing to type in a 4-year rule rent on the gear, counting support, for installments of $260,000 at the starting of each year. Company L’s negligible federal-plus-state charge rate is 40 percent.

To determine: The consolidated NPV and IRR of leasing.

Answer 8

b)

Summary Introduction

To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

Answer 9

b)

Summary Introduction

To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 19 - Define each of the following terms: a. Lessee;...Ch. 19 - Distinguish between operating leases and financial...Ch. 19 - Prob. 3Q Ch. 19 - Prob. 4Q Ch. 19 - Prob. 5Q Ch. 19 - Prob. 6Q Ch. 19 - Prob. 7Q Ch. 19 - Prob. 8Q Ch. 19 - Reynolds Construction (RC) needs a piece of...Ch. 19 - Lease versus Buy Consider the data in Problem...

Solution Summary: The author explains that Company L procured an unused advertise information and citation framework for its R domestic office. The framework gets current showcase costs and other data from a few on-line information administrations.

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To determine: The point of view on NPV of lessor if lease payment were set as $260,000 per year.

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