DDX plc is trying to decide whether to lease or to buy a machine with a useful
Question:
DDX plc is trying to decide whether to lease or to buy a machine with a useful life of six years. DDX could borrow £90,000 to buy the machine or lease it for annual lease rentals of £20,000 per year for six years, payable at the start of each year. If the machine is bought, maintenance costs of £1,000 per year will be incurred. These costs will not be incurred if the machine is leased. The machine has zero scrap value. DDX pays tax at a rate of 19 per cent one year in arrears and can claim capital allowances on a 25 per cent reducing balance basis. The company’s before-tax cost of borrowing is 8.6 per cent. Should DDX lease or buy the machine?
Step by Step Answer:
As leasing is an alternative to borrowing the relevant cash flows of the two alternatives can be com...View the full answer
Corporate Finance Principles And Practice
ISBN: 9781292450940
9th Edition
Authors: Denzil Watson, Antony Head
Students also viewed these Business questions
-
Permafrost plc needs a new computer network but is uncertain whether to buy the system or to lease it from Slush plc. The system will cost 800,000 if bought and Permafrost plc would borrow to finance...
-
Study the information given below and answer the following questions: (25 Marks) 1.1 Calculate the Payback Period of both machines (answers expressed in years, months and days). (5 marks) 1.2 Which...
-
The Strubel Company currently makes as many units of Part No. 789 as it needs. David Lin, general manager of the Strubel Company, has received a bid from the Gabriella Company for making Part No....
-
A sphere of 80 mm diameter lies at a depth of 500 m in sea water. The bulk modulus of sphere is 200 GPa. If the specific weight of sea water is 10.3 kN/m, the decrease in the volume (in mm) of the...
-
What is meant by a billing scheme?
-
1. Prior to launching their firms, how could BlackJet, Ridejoy, and Neighborrow.com have better anticipated the issues that ultimately caused them to fail? 2. In regard to putting together an...
-
The following are the graded scores (out of 20) obtained by a class of 28 students in statistics: 12,8,6,10,9,15,18,19,20,18,20,16,12,10,14,16,17,19,20,20,14,11,12,15,17,16,12, and 17. Test for...
-
1. Explain the role of cognitive shortcomings in the WorldCom fraud and how social and organizational pressures influenced Betty Vinson's actions. 2. The SEC action against Vinson was deemed...
-
Assume that there exist many risky assets on a capital market. The CAPM holds and the market portfolio offers a return of rM = 12% and has a standard deviation of oM = 15%. The risk-free rate equals...
-
Clement plc is evaluating three investment projects, whose expected cash flows were given in Table 6.4. Calculate the internal rate of return for each project. If Clements cost of capital is 10 per...
-
Outline the advantages and disadvantages to a company of issuing convertible bonds.
-
Hurte-Paroxysm Products, Inc. (HP) of the United States, exports computer printers to Brazil, whose currency, the reais (R$) has been trading at R$3.40/US$. Exports to Brazil are currently 50,000...
-
Can you describe three early examples of systems that used games and play to accomplish specific goals?
-
What was Enrons first successful market?
-
Explain the benefits of the triangle of fraud action in comparison to the fraud triangle in courtroom testimonial situations.
-
Using Blooms revised taxonomy, evaluate the types of knowledge and learning occurring in a game or gamified system. What kind of knowledge is being gained; what kinds of skills? What domains...
-
Who was the famous whistleblower who penned the memo Has Enron Become a Risky Place to Work?
-
Quesnel Inc. has a number of outstanding loans. For each of the following situations, record the adjusting journal entry that would be required at year-end to accrue the interest expense. In each...
-
In the circuit shown in Figure 4, a battery supplies a constant voltage of 40 V, the inductance is 2 H, the resistance is 10, and l(0) = 0. (a) Find l(t). (b) Find the current after 0.1s.
-
Suppose that 15 years ago Bill Evans started the Samurai Machinery (SM) Corp., which purchased plant and equipment costing $80,000. These have been the only assets of SM and the company has no debts....
-
Suppose Firm A acquires Firm B, creating a new firm, Firm AB. Firm As and Firm Bs financial positions at the date of the acquisition are shown in Table 29.7. The book value of Firm B on the date of...
-
Suppose on April 2, 2021, Torrance, Inc., had 28 million shares outstanding and the companys stock price closed the day before at $49.25 per share on the New York Stock Exchange. Further suppose that...
-
A standard bathroom scale is placed on an elevator. A 70 kg man enters the elevator on the fourth floor and steps on the scale. What will the scale read (in N) when the elevator begins to accelerate...
-
A steel cable with total length 26 m and mass 150 kg is connected to two poles. The tension in the cable is 6,827 N, and the wind makes the cable vibrate with a frequency of 2 Hz. Calculate the...
-
A hot-air balloonist, rising vertically with a constant speed of 4.00 m/s, releases a sandbag at the instant the balloon is 12.0 m above the ground. After it is released, the sandbag encounters no...
Study smarter with the SolutionInn App