Exactly two years ago, you were contemplating a new project. To execute it, you bought land...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Exactly two years ago, you were contemplating a new project. To execute it, you bought land for 1 million, built a building (instantaneously) for 450,000, and bought and installed equipment (instantaneously) for 200,000. Land is not depreciated; the building is depreciated straight line (SL) 5 years for taxes and machine is SL 3 years for taxes. Both are SL 7 years for financial reporting purposes. The project did not work out. The machines lay unused, and you started leasing out the building and land immediately to another user for 145,000 per year, payable annually in advance. The last such rent payment occurred yesterday. You can do it for as long you want to keep doing it, and you can stop at any time. You discover today that, as of tomorrow, you can use the land and building and machines for your own purpose. If you do it, you can reduce your operation costs on some of your other departments by 95,000 per year. You can also use the building, and machines to produce a new product that will sell for 350,000 per year. This new product's costs are 80% of revenues. This project's life expectancy is 5 years. Regardless of whether you lease the facility or use it for yourself, you do not know what will happen after 5 years. You live in a world of no inflation. Your tax rate is 18%, your cost of capital is 9.15%. a) (18 PTS) Please execute whatever calculations you need to do to decide whether to discontinue the leasing of the is facility and use the facility and the machines for yourself, or whether you prefer to continue leasing it to the other users. Exactly two years ago, you were contemplating a new project. To execute it, you bought land for 1 million, built a building (instantaneously) for 450,000, and bought and installed equipment (instantaneously) for 200,000. Land is not depreciated; the building is depreciated straight line (SL) 5 years for taxes and machine is SL 3 years for taxes. Both are SL 7 years for financial reporting purposes. The project did not work out. The machines lay unused, and you started leasing out the building and land immediately to another user for 145,000 per year, payable annually in advance. The last such rent payment occurred yesterday. You can do it for as long you want to keep doing it, and you can stop at any time. You discover today that, as of tomorrow, you can use the land and building and machines for your own purpose. If you do it, you can reduce your operation costs on some of your other departments by 95,000 per year. You can also use the building, and machines to produce a new product that will sell for 350,000 per year. This new product's costs are 80% of revenues. This project's life expectancy is 5 years. Regardless of whether you lease the facility or use it for yourself, you do not know what will happen after 5 years. You live in a world of no inflation. Your tax rate is 18%, your cost of capital is 9.15%. a) (18 PTS) Please execute whatever calculations you need to do to decide whether to discontinue the leasing of the is facility and use the facility and the machines for yourself, or whether you prefer to continue leasing it to the other users.
Expert Answer:
Answer rating: 100% (QA)
To decide whether to discontinue leasing the facility and use it for yourself or continue leasing it ... View the full answer
Related Book For
Personal Finance
ISBN: 978-1259453144
6th Canadian edition
Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes, Arshad Ahmad, Jordan Fortino
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Obtain the transfer functions X(s)/F(s) and Y(s)/F(s) for the following model: 3x = y y = f(t) -3y- 15x
-
Smith was approached by a man who introduced himself as Brown of Brown & Co. Brown was not known to Smith, but Smith asked Dun & Bradstreet for a credit report and obtained a very favorable report on...
-
Find the derivative of the function at P 0 in the direction of u. (x, y, z) = x 2 + 2y 2 - 3z 2 , P 0 (1, 1, 1), u = i + j + k
-
Based on the design, briefly discuss the data collection procedures to be used. Be sure to include the area rea of focus and targeted sample as part of these procedures. Develop a hypothetical...
-
The marketing department of Metroline Manufacturing estimates that its sales in 2013 will be $1.5 million. Interest expense is expected to remain unchanged at $35,000, and the firm plans to pay...
-
Assistant please, 1) Discuss two impacts to the Database management process by the Data definition language (DDL) and Data manipulation language (DML). 2) Share with a business partner two...
-
The Analytical Chemistry (Dec. 15, 2009) study in which HPLC scientists used high-performance liquid chromatography to determine the amount of drug in a tablet. Twenty-five tablets were produced at...
-
A personal computer manufacturer is interested in comparing assembly times for two keyboard assembly processes. Process 1 is the standard process used for several years, and Process 2 is an updated...
-
A major source of chicken feed in the United States is anchovies, small fish that can be scooped out of the ocean at low cost. Every 7 years, when the anchovies disappear to spawn, producers must...
-
Under what condition would society benefit from more of a good being produced, and under what condition would society benefit from less of a good being produced?
-
You and nine of your softball teammates are offered the chance to buy a pool hall. Each partner would put up $50,000. The revenues from the operation of the pool hall have been steady at $125,000 per...
-
The Blume quintuplets, Aster, Dahlia, Iris, Jasmine, and Poppy, have an opportunity to purchase a wholesale florist company. Each of the women would have to put up $300,000 to make the purchase. The...
-
The point of scalping is to find someone who wants a ticket more than the person who presently has it. Whenever two different prices exist in a market, arbitrage opportunities (buy and then sell at a...
-
Objective [2.9] A. You need a simple interest bridge loan to cover the costs of buying a new home while waiting to close on your old one. You need to finance $70,000 and bank will charge 7%. How much...
-
The Home Depot is the leading retailer in the home improvement industry and one of the 10largest retailers in the United States. The company included the following on its January 29, 2012, balance...
-
1. What factors affect a person's ability to buy a house? 2. What are common sources of a down payment? Why should home buyers not use all their savings for the down payment on a home purchase? 3....
-
Referring to the bond described in Problem 8, assume that the bond's interest payments were reinvested at a rate of 5% per annum. a. What would be the future value of the reinvested coupons (there...
-
What information does a cash flow statement present?
-
A first-order dynamic system is modeled as \[\dot{y}+3 y=f(t), y(0)=1\] Assuming the input \(f(t)\) is a step function with magnitude 0.8 , find \(y_{s s}\).
-
The nonlinear state-variable equations for a dynamic system are derived as Plot \(x_{1}(t)\) versus \(0 \leq t \leq 10\) by a. Using the RK4 method. b. Simulating the Simulink model of the system. [...
-
Draw the Bode plot and identify the corner frequency, as well as the asymptotic approximations of magnitude for low-frequency and high-frequency ranges. \(G(s)=\frac{4}{3 s+\frac{2}{3}}\)
Study smarter with the SolutionInn App