Exercise 2 Wild Pet, Inc., a Pets's food and supplement firm, is considering the acquisition of...

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Exercise 2 Wild Pet, Inc., a Pets's food and supplement firm, is considering the acquisition of a new "Cats Croquette" processing machine. Wild Pet can purchase the machine through the use of its normal financing mix (35% debt and 65% common equity) or lease it. Pertinent details follow: Acquisition price of the machine Useful life Salvage value Depreciation method Annual cash savings before tax and depreciation from the machine Rate of interest on a four-year installment loan Marginal tax rate Annual rentals (four-year lease) Annual operating expenses included in the lease Cost of capital a) Calculate the NPV. b) Calculate the NAL. c) Should the company lease or buy the machine? $45,000 4 years $5,000 Straight-line $16,000 12% 40% $13,000 $1,750 14% Exercise 2 Wild Pet, Inc., a Pets's food and supplement firm, is considering the acquisition of a new "Cats Croquette" processing machine. Wild Pet can purchase the machine through the use of its normal financing mix (35% debt and 65% common equity) or lease it. Pertinent details follow: Acquisition price of the machine Useful life Salvage value Depreciation method Annual cash savings before tax and depreciation from the machine Rate of interest on a four-year installment loan Marginal tax rate Annual rentals (four-year lease) Annual operating expenses included in the lease Cost of capital a) Calculate the NPV. b) Calculate the NAL. c) Should the company lease or buy the machine? $45,000 4 years $5,000 Straight-line $16,000 12% 40% $13,000 $1,750 14%

Answer rating: 100% (QA)

The company should buy the machine 85 File C36 3 4 A 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 2... View the full answer