Freedom Ltd is considering whether to lease or buy an advanced machine for its new product....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Freedom Ltd is considering whether to lease or buy an advanced machine for its new product. The following information is available for this decision: Buy: The purchase price of the machine is $4.85 million. The machine will be depreciated using straight-line method over 4 years with a zero salvage value. Lease: The annual lease payments will be $1.1 million, payable at the beginning of each of the four years of the lease. The annual interest rate of secured debt is 11.67%. The corporate tax rate is 40%. (a) Should the firm lease or buy the machine? Why? (Show your calculations). (13 marks) (b) Calculate the maximum amount of lease payment that Freedom Ltd is willing to pay. (Show your calculations). (4 marks) Freedom Ltd is considering whether to lease or buy an advanced machine for its new product. The following information is available for this decision: Buy: The purchase price of the machine is $4.85 million. The machine will be depreciated using straight-line method over 4 years with a zero salvage value. Lease: The annual lease payments will be $1.1 million, payable at the beginning of each of the four years of the lease. The annual interest rate of secured debt is 11.67%. The corporate tax rate is 40%. (a) Should the firm lease or buy the machine? Why? (Show your calculations). (13 marks) (b) Calculate the maximum amount of lease payment that Freedom Ltd is willing to pay. (Show your calculations). (4 marks)
Expert Answer:
Answer rating: 100% (QA)
a BUY Option 485 Million which Depriciated in Four ... View the full answer
Related Book For
Financial Accounting Tools for business decision making
ISBN: 978-0470534779
6th Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
Posted Date:
Students also viewed these accounting questions
-
Nash Business School is considering whether to lease or buy a shuttle bus for students travelling between its two campuses. The bus costs $1.8 million, with a CCA rate of 25 percent. The lease...
-
Lake Trolley Company is considering whether to lease or buy a new trolley that costs $25,000. The trolley can be depreciated straight line over an eight- year period to an estimated residual value of...
-
United Savings Bank (USB) is considering whether to lease or buy a building. If they buy, they will pay $1,600,000, depreciate straight line to $800,000 over 5 years, and expect to be able to sell...
-
If an object is dropped from a height h, then the time t required for the object to strike the ground is directly proportional to the square root of h. If it requires 1 second for an object to fall...
-
List three to four major advantages of wireless commerce to consumers, and explain what benefits they provide to consumers.
-
Mary Martin owns a custom curtain/drapery business. In 2019, she purchased three new sewing machines and in a separate transaction, sold her three old machines for $6,000. She had bought the old...
-
True or False. It is best to provide a customer with every piece of recorded data for a final report.
-
Your client, Schroeder Manufacturing Co., provided the following schedule of property, plant, and equipment for the year ended June 30, 2019. Balances have been agreed to the general ledger. As part...
-
What advancements in supramolecular chemistry have been instrumental in developing new classes of organocatalysts, and how do these developments influence catalytic efficiency and chiral induction ?
-
A regional express delivery service company recently conducted a study to investigate the relationship between the cost of shipping a package (Y), the package weight (X1), and the distance shipped...
-
Who would typically use a short - term look - ahead schedule ? options: 1 . Site Super 2 . Project Manager 3 . Prime Consultant 4 . Client
-
A research question that could be asked using the available data: Is there any advantage to never having smoked when it comes to the severity of CoVID-19?Essentially, we would like to know if the...
-
Emma Co.'s records reveal the following data at year-end: Commercial paper maturing in four months $1,600 Uncashed tax refund check 1,000 Petty cash 155 Certificates of deposit 1,675 Balance in Union...
-
Cat in the Hat LLC had the following items for the year ended December 31, 2023; these are all entire company level items unless otherwise labeled. During 2023, Cat in the Hat LLC removed all book...
-
The diagram' below. (25 points) shows a monopolistically competitive firm in the long run. Answer the questions a. If the firm is currently producing and selling Q1 units, what is the price being...
-
Lider Balance General 31 Diciembre Ao 2020 ($ miles) ACTIVOS 2020 Circulante Efectivo $10,000.0 Cuentas por Cobrar $25,000.00 Inventarios Materia Prima $4,500.00 Productos en Proceso $4,500.00...
-
(Warm-up) The mechanism for the reaction you'll perform in Lab B involves one or more carbocation rearrangement(s). Examine the carbocation rearrangement below. Provide an arrow pushing mechanism for...
-
Rewrite Programming Exercise 7.5 using streams. Display the numbers in increasing order. Data from Programming Exercise 7.5 Write a program that reads in 10 numbers and displays the number of...
-
In recent years, Harper Transportation purchased three used buses. Because of frequent employee turnover in the accounting department, a different accountant selected the depreciation method for each...
-
Gleason Enterprises issued 9%, 8-year, $2,600,000 par value bonds that pay interest semiannually on October 1 and April 1. The bonds are dated April 1, 2012, and are issued on that date. The discount...
-
Palmer Corporation issued 3,000 7%, 5-year, $1,000 bonds dated January 1, 2012, at face value. Interest is paid each January 1. (a) Prepare the journal entry to record the sale of these bonds on...
-
Home Inc. (a US company) has a wholly-owned subsidiary, S, which it acquired on 1 January X0. The balance sheets of S as at 1 January X0 and 31 December X0 are as set out in Figure 15.1 in foreign...
-
An entitys functional currency is: A. The currency of its parents country. B. The currency of its own country. C. The currency in which the financial statements are presented. D. The currency of the...
-
Entity X based in one country (currency $) bought goods from Entity Y in another country (currency :) for :300,000 on 1 May 20X1. The spot rate on that date was $1 = :1. As at 31 December 20X1, the...
Study smarter with the SolutionInn App