Imagine yourself in the position of Thomas Pierce III, president of Greymare Bus Lines. Your firm...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/66490bcbec389_17966490bcb7536d.jpg)
Transcribed Image Text:
Imagine yourself in the position of Thomas Pierce III, president of Greymare Bus Lines. Your firm was established by your grandfather, who was quick to capitalize on the growing demand for transportation between Widdicombe and nearby townships. The company has owned all its vehicles from the time the company was formed; you are now reconsidering that policy. Your operating manager wants to buy a new bus costing $89,000. The bus will last only eight years before going to the scrap yard. You are convinced that investment in the additional equipment is worthwhile. However, the representative of the bus manufacturer has pointed out that her firm would also be willing to lease the bus to you for eight annual payments of $15,800 each. Greymare would remain responsible for all maintenance, insurance, and operating expenses. If Greymare does not own the bus it cannot depreciate it and therefore, it gives up a valuable depreciation tax shield. We assume depreciation would be calculated immediately. Greymare's borrowing rate is 11%. Assume this is a financial lease. a. What is the value of the lease if Greymare's marginal tax rate is Tc = 0.30? b. What would the lease value be if the tax rate is 21%, but for tax purposes, the initial investment had to be written off in equal amounts over years 1 through 5? Note: For all requirements, a negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in thousands rounded to 2 decimal places. a. Value of the lease $ 64,133.55 thousands b. Value of the lease $ 67,493.48 thousands Imagine yourself in the position of Thomas Pierce III, president of Greymare Bus Lines. Your firm was established by your grandfather, who was quick to capitalize on the growing demand for transportation between Widdicombe and nearby townships. The company has owned all its vehicles from the time the company was formed; you are now reconsidering that policy. Your operating manager wants to buy a new bus costing $89,000. The bus will last only eight years before going to the scrap yard. You are convinced that investment in the additional equipment is worthwhile. However, the representative of the bus manufacturer has pointed out that her firm would also be willing to lease the bus to you for eight annual payments of $15,800 each. Greymare would remain responsible for all maintenance, insurance, and operating expenses. If Greymare does not own the bus it cannot depreciate it and therefore, it gives up a valuable depreciation tax shield. We assume depreciation would be calculated immediately. Greymare's borrowing rate is 11%. Assume this is a financial lease. a. What is the value of the lease if Greymare's marginal tax rate is Tc = 0.30? b. What would the lease value be if the tax rate is 21%, but for tax purposes, the initial investment had to be written off in equal amounts over years 1 through 5? Note: For all requirements, a negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in thousands rounded to 2 decimal places. a. Value of the lease $ 64,133.55 thousands b. Value of the lease $ 67,493.48 thousands
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
RWP3-1 (Algo) Great Adventures Continuing Problem (GL) Tony and Suzie graduate from college in May 2024 and begin developing their new business. They begin by offering clinics for basic outdoor...
-
1. Phrenology: A. Claims that we can understand people's intellectual capabilities from bumps on their skull B. Gave rise to the field of craniometry/craniology C. Is confirmed to be true D. Claims...
-
A property was purchased for quarterly payments of $8000.00 for 10 years. If the first payment was made on the date of purchase and interest is 6% p.a. compounded annually, what was the purchase...
-
In Problems 1316, find each sum. 10 (-2)* k=1
-
Which one of the following is not a primary reason companies invest in other companies? a To earn return on excess cash b. To eliminate risk in other investments c. To gain influence over another...
-
Repeat Problem 8.111 if the pipes are galvanized iron and the friction factors are not known a priori. Problem 8.111 Air, assumed incompressible, flows through the two pipes shown in Fig. P8.111....
-
What are the three components of application controls? Briefly discuss each.
-
The contribution margin income statement of Krazy Kustard Donuts for August 2016 follows: Krazy Kustard sells four dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells...
-
Given f (x) =x- + 6x, (a) Find f (x + h) and simplify. f(xth) - f (x ) (b) Find h and simplify. Part: 0 / 2 Part 1 of 2 ( a) f(x th ) = 0 0+0 0-0 X
-
The most important aspect of any presentation is ________ length using the right tools that complement your presentation knowing what the audience needs getting the audience to receive, understand, an
-
Problem 2 - GSW owns 20% in JV Inc. and uses the equity method to account for its interest in the joint venture. GSW has joint control over the JV Inc. In 2019, GSW sold inventory to JV Inc. for P...
-
The COSSAC Co. Charges manufacturing overhead into production at the rate of P10 per direct labor hour, base on standard production of 15000 direct labor hours for 15000 units: 60% manufacturing...
-
4. Suppose that the Mayfields decide to retire at age 60. How much do they need in assets at that time to fund income needs from ages 60-62, assuming that they still want $90,000 (in today's dollars)...
-
Using Chipotle: Capital structure decision case study Answer the following questions. How does debt policy and the percentage of debt affect Chipotle's firm value Use bullets to highlight the main...
-
How are the three deep structure elements interrelated (family, religion, and state) ? Are those links the same in every culture: Why do think cultural differences in the perception and treatment of...
-
Consider the following competing hypotheses and relevant summary statistics: H 0 : 21/2212/22 = 1 H A : 21/2212/22 1 Sample 1: xx 1 = 48.5, s21s12 = 18.7, and n 1 = 10 Sample 2: xx 2 = 50.2, s22s22 =...
-
Banner Company acquires an 80% interest in Roller Company for $640,000 cash on January 1, 2013. The NCI has a fair value of $160,000. Any excess of cost over book value is attributed to goodwill. To...
-
Determine financial statement components (Learning Objective 7) (Appendix) MaggieB, a budding professional tennis player, was unsatisfied with the tennis racquets currently available at sports stores...
-
The file "mmm9912-dtp.dat" contains the transactions data of the stock of \(3 \mathrm{M}\) Company in December 1999. There are three columns: day of the month, time of transaction in seconds from...
-
Absorption and variable costing income statements (Learning Objective 7) (Appendix) Game Source manufactures video games, which it sells for \(\$ 40\) each. The company uses the FIFO inventory...
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App