# Question: A firm whose cost of capital is 10 percent may

A firm, whose cost of capital is 10 percent, may acquire equipment for $113,479 and rent it to someone for a period of five years.

a. If the firm charges $36,290 annually to rent the equipment, what are the net present value and the internal rate of return on the investment? Should the firm acquire the equipment?

b. If the equipment has no estimated residual value, what must be the minimum annual rental charge for the firm to earn the required 10 percent on the investment?

c. If the firm can sell the equipment at the end of the fifth year for $10,000 and receive annual rent payments of $36,290, what are the net present value and the internal rate of return on the investment?

What is the impact of the residual?

d. If the $10,000 residual resulted in the firm charging only $34,290 for the rental payments, what is the impact on the investmentâ€™s net present value?

a. If the firm charges $36,290 annually to rent the equipment, what are the net present value and the internal rate of return on the investment? Should the firm acquire the equipment?

b. If the equipment has no estimated residual value, what must be the minimum annual rental charge for the firm to earn the required 10 percent on the investment?

c. If the firm can sell the equipment at the end of the fifth year for $10,000 and receive annual rent payments of $36,290, what are the net present value and the internal rate of return on the investment?

What is the impact of the residual?

d. If the $10,000 residual resulted in the firm charging only $34,290 for the rental payments, what is the impact on the investmentâ€™s net present value?

**View Solution:**## Answer to relevant Questions

If the cost of capital is 9 percent and an investment costs $56,000, should you make this investment if the estimated cash flows are $5,000 for years 1 through 3, $10,000 for years 4 through 6, and $15,000 for years 7 ...SLM, Inc., with sales of $1,000, has the following balance sheet: It earns 10 percent on sales (after taxes) and pays no dividends. a. Determine the balance sheet entries for sales of $1,500 using the percent of sales method ...BHM, Inc. has the following balance sheet: Sales are currently $80,000 but are expected to fall to $60,000, which will require a contraction of assets. Since the firm is contracting, management would like to retire the ...a. What is the EOQ for a firm that sells 5,000 units when the cost of placing an order is $5 and the carrying costs are $3.50 per unit? b. How long will the EOQ last? How many orders are placed annually? c. As a result of ...If you purchase a $10,000 short-term (90-day) negotiable certificate of deposit for $9,814, what is the discount yield, the simple yield, and the true compound yield?Post your question