Fresno Machine Shop has decided to acquire a new machine that costs $3,000. The machine will be
Question:
Fresno Machine Shop has decided to acquire a new machine that costs $3,000. The machine will be worthless after three years. Only straight-line depreciation is allowed by the IRS for this type of machine. ABC Leasing, Inc. offers to lease the same machine to Fresno under an operating lease. Annual lease payments are $1,200 per year and are due at the end of each of the three years. The market-wide borrowing rate is 8 percent for loans on assets such as this. Fresno’s marginal tax rate is 35 percent. Should Fresno lease the machine or buy it? Assume that Fresno would not borrow to purchase the machine.
Step by Step Answer:
If Fresno buys the machine it will pay 3000 upfront and will receive an annual depreciation deductio...View the full answer
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates
Related Video
In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue
Students also viewed these Corporate Finance questions
-
The Boggs Machine Tool Company has decided to acquire a pressing machine. One alternative is to lease the machine under a three-year contract for a lease payment of $15,000 per year with payments to...
-
The Yankee Machine Shop has decided to schedule its workforce to work ten hours per day, five days per week. Does this new policy provide enough capacity to complete the orders shown in Problem 19?
-
A municipal police department has decided to acquire an unmanned drone for aerial surveillance of a high-crime region of their city. Three mutually exclusive drones are being studied and their data...
-
1) The following information relates to the ABCs depreciable assets. Class 1 - During 2020, a new office building was acquired at a total cost of $623,000. Of this total, it is estimated that the...
-
Rick Beam has been an independent sales representative for various textile manufacturers for many years. His products consist of soft goods such as tablecloths, curtains, and drapes. Rick's customers...
-
We would like to cover a rectangular area by two kinds of tiles: 1 x 1 and 1 x 2 tiles (the 1 x 2 tiles can be rotated). Give a recurrence and boundary conditions for the number of ways to cover the...
-
A spherical capacitor consists of two concentric conducting spherical shells of radii \(R\) and \(2 R\). (a) How long would a coaxial cylindrical capacitor made of two concentric cylindrical...
-
Case Law: In the case of Baldonado v. State, the plaintiff sued the state for false arrest. In Baldonado, a police officer received information from the dispatcher concerning a violent domestic...
-
18.A sine wave is travelling in a medium. The minimum distance between the two particles, always having same speed, is (1) (2)
-
Consider a market described by the table below: Stock Price Issued Stocks Covariance with M A 42 1,000 1,200 0.0657 40 0.0793 C 120 500 0.0406 rf = 3%. Assume that the market is in a CAPM...
-
What characteristic of a lease leads to conflicts between the lessee and the lessor?
-
Your firm is considering leasing an emachine. The lease lasts for three years and calls for four payments of $100 per year with the first payment due immediately. The emachine would cost $360 to buy...
-
A student association has hired a band and a caterer for a graduation party. The band will charge a fixed fee of $ 2,000 for an evening of music, and the caterer will charge a fixed fee of $ 1,200...
-
Calculate the ratio of the force of gravity at the center of Earth between the Sun and the Moon ( Sun over Moon ) of an object of 7 8 1 kg . Mass of the Sun 1 . 9 8 9 1 e + 3 0 kg; Mass of the Moon 7...
-
Define types of communication flow and levels of communication. Explain the importance of communication in business, and provide justification for how the flow of communication can affect a message.
-
How do organizations leverage social network analysis and collaborative analytics to identify key influencers and brokers within their collaboration ecosystems, enhancing coordination and knowledge...
-
Write a program that extracts all e-mail addresses from a text. These are all substrings that are limited on both sides by text end or separator between words and match the shape @ . Sample text:...
-
Write a program that reads a string from the console and replaces every sequence of identical letters in it with a single letter (the repeating letter). Example:" aaaaabbbbbcdddeeeedssaa "" abcdedsa...
-
One of the problems that the ESC would be forced to deal with early on would be uncontrolled population growth. Remember that one of the reasons for modeling the ESC after the Security Council and...
-
7 A 29-year-old, previously healthy man suddenly collapses at a party where legal and illicit drugs are being used. Enroute to the hospital, he requires resuscitation with defibrillation to establish...
-
Demonstrate what happens when you include a single backslash (\) in a string. Be sure that the character after the backslash does not create a valid escape sequence.
-
Management of Franklin Mints, a confectioner, is considering purchasing a new jellybean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $121,450...
-
Blanda Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are...
-
Explain why the announcement of a new investment is usually accompanied by a change in the firm's stock price?
-
1 B C Use Excel to journalize the adjusting entries. Use the blue shaded areas for inputs. (Always use cell references and formulas where appropriate to receive full credit. If you copy/paste from...
-
A. Make each pair of radicals similar by reducing the radicand. 1. 2,8 2. 3.24 3. 45,125 4. 3,96 5. 27.75 6. 48,12 7. 28,63 8. 4/32,1/162 9. 40,135 10. 8.200 B. Referring to each pair in letter A, do...
-
Assume that you are the president of Highlight Construction Company. At the end of the first year of operations (December 31), the following financial data for the company are available: Cash...
Study smarter with the SolutionInn App