Leasing the equipment: MTC can lease the equipment under a five year lease contract that required...

Transcribed Image Text:

Leasing the equipment: MTC can lease the equipment under a five year lease contract that required P50,000 end-of-the-year payments. Maintenance cost, will be paid by the lessor and insurance and other costs will be paid by the lessee. The lessee will exercise its option to acquire the asset for P40,000 at the end of the lease contract. B)Purchasing the equipment: The equipment costs P200,000 and has a useful life of five years. straight line depreciation will be used, and the company is currently under 40% tax bracket. The purchase of the equipment will be financed through a five year loan with fifteen percent interest that requires end-of-the-year payments of P59,670. The firm will pay P10,000 per year for a contract that covers all other costs borne by the firm. MTC plans to keep the equipment and use it beyond its five year recovery period. Round off final answers to two(2) decimal places, use comma as separator 1. For the leasing plan, how much is the after tax cash outflow for year 3? 2. For the leasing plan, how much is the present value of the cash outflows using 9% cost of capital?[answer2] 3. For the purchasing plan, how much is the annual interest expense for year 4? 4. For the purchasing plan, how much is the after-tax cash outflow for year 4? 5. For the purchasing plan, how much is the present value of the cash outflows using 9% cost of capital?[answer5] 6. What proposal should MTC choose? A or B 7. How much is the incremental savings of the company from your answer in number 6? Leasing the equipment: MTC can lease the equipment under a five year lease contract that required P50,000 end-of-the-year payments. Maintenance cost, will be paid by the lessor and insurance and other costs will be paid by the lessee. The lessee will exercise its option to acquire the asset for P40,000 at the end of the lease contract. B)Purchasing the equipment: The equipment costs P200,000 and has a useful life of five years. straight line depreciation will be used, and the company is currently under 40% tax bracket. The purchase of the equipment will be financed through a five year loan with fifteen percent interest that requires end-of-the-year payments of P59,670. The firm will pay P10,000 per year for a contract that covers all other costs borne by the firm. MTC plans to keep the equipment and use it beyond its five year recovery period. Round off final answers to two(2) decimal places, use comma as separator 1. For the leasing plan, how much is the after tax cash outflow for year 3? 2. For the leasing plan, how much is the present value of the cash outflows using 9% cost of capital?[answer2] 3. For the purchasing plan, how much is the annual interest expense for year 4? 4. For the purchasing plan, how much is the after-tax cash outflow for year 4? 5. For the purchasing plan, how much is the present value of the cash outflows using 9% cost of capital?[answer5] 6. What proposal should MTC choose? A or B 7. How much is the incremental savings of the company from your answer in number 6?

Answer rating: 100% (QA)

1 Leasing Plan The aftertax cash outflow for year 3 is P36000 2 ... View the full answer