The Benton Company has decided to acquire some new R&D equipment. One alternative is to lease...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The Benton Company has decided to acquire some new R&D equipment. One alternative is to lease the equipment on a 4-year guideline contract for a lease payment of $11,500 per year, payments to be made at the beginning of each year. The lease, which would include maintenance, is being offered by lePage Credit Corporation, a local leasing company. LePage would purchase the equipment outright for $40,000, and would have to pay the local dealer $1,000 at the beginning of each year to provide maintenance service. The equipment falls into the MACRS 3-year class, and it has a residual value of $10,000, which is the expected market value after 4 years. The lessor's marginal state-plus-federal tax rate is 40 percent. The analysts at LePage compare the returns on potential leases with returns available on comparable maturity commercial bank loans which the firm also writes. Currently, LePage is charging 9 percent on 4- year commercial loans. Based on the NPV analysis, Should LePage write the lease? Why or why not? The Benton Company has decided to acquire some new R&D equipment. One alternative is to lease the equipment on a 4-year guideline contract for a lease payment of $11,500 per year, payments to be made at the beginning of each year. The lease, which would include maintenance, is being offered by lePage Credit Corporation, a local leasing company. LePage would purchase the equipment outright for $40,000, and would have to pay the local dealer $1,000 at the beginning of each year to provide maintenance service. The equipment falls into the MACRS 3-year class, and it has a residual value of $10,000, which is the expected market value after 4 years. The lessor's marginal state-plus-federal tax rate is 40 percent. The analysts at LePage compare the returns on potential leases with returns available on comparable maturity commercial bank loans which the firm also writes. Currently, LePage is charging 9 percent on 4- year commercial loans. Based on the NPV analysis, Should LePage write the lease? Why or why not?
Expert Answer:
Answer rating: 100% (QA)
To determine whether LePage should write the lease we can perform a net present value NPV analysis The NPV analysis compares the present value of cash ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
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...
-
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...
-
Consider the following generic reaction: 2A2B(g) 2A2(g) + B2(g) Some molecules of A2B are placed in a 1.0- L container. As time passes, several snapshots of the reaction mixture are taken as...
-
Benjamin, a new staff accountant for Local Firm CPAs, LLC, takes a CPA review course to help prepare for the CPA exam. Benjamin is not reimbursed for the cost of the course ($1,500), but his firm...
-
How can the job performance (output) of the employees be increased through enriched jobs and rewards?
-
Using only the factor formulas given in Table 2.6, derive Equation 7.6 starting with Equation 7.3. TABLE 2.6 Summary of Discrete Compounding Interest Factors. To Find Given Factor Symbol Name P F...
-
Milner Manufacturing uses a job order cost accounting system. On May 1, the company has a balance in Work in Process Inventory of $3,200 and two jobs in process: Job No. 429 $2,000, and Job No. 430...
-
Problem 2 o is the fitted value or predicted value of the response when the predictor is xo. 1) Derive the variance of o, o2 {0}, in a Simple Linear Regression setting when there is only one...
-
Students should read the Harvard Business School case study entitled 'Investments: Delineating an Efficient Portfolio' and answer the following questions. Students should note that the risk of the...
-
Program In Java, Happy Numbers - A happy number is definedby the following process. Starting with any positive integer(>10) from user, replace the number by the sum of the squares ofits digits,...
-
In considering the scenario of potentially adjusting the useful life of equipment due to unexpected wear and tear, ethical considerations are essential. Altering the useful life may impact the...
-
W hy might the modified accrual accounting method better suit state and local governments to provide accurate fiscal management? After naming your home state, describe which method your home state or...
-
As the Manager of a growing beauty product company, you are considering widening the product range by launching a new product: a hair dressing tonic. The incremental profit is $700 per unit and the...
-
Managerial auditing and financial reporting share a symbiotic relationship within organizations, as they are both integral components of corporate governance and accountability. Let's delve into the...
-
The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $60,000. It had an expected life of 10 years when it was bought, and its remaining depreciation is $6,000 per year...
-
rn The following Trial Balance relates to Banco Community College, a public tertiary educational institution in Guyana, as at December 31, 2019. DR CR $00 4,575,622 $00 Fees Income 5,312,430 856,670...
-
Explain how the graph of each function can be obtained from the graph of y = 1/x or y = 1/x 2 . Then graph f and give the (a) Domain (b) Range. Determine the largest open intervals of the domain over...
-
A special-purpose machine is to be purchased at a cost of $15,000. Table P14.10 shows the expected annual operating and maintenance cost and the salvage value s for each year of the machine's...
-
An automobile loan of $25,000 at a nominal rate of 6% compounded monthly for 60 months Requires equal end - of - month payments of $483.32. Complete Table P4.60 for the first six payments, as you...
-
Hugh Health Product Corporation is considering purchasing a computer to control plant packaging for a spectrum of health products. The following data have been collected: First cost = $120,000 to be...
-
Blades of grass grow from the bottom, so, as growth occurs, the top of the blade moves upward. During the summer, when your lawn is growing quickly, estimate this speed, in m/s. Make this estimate...
-
A circular test track for cars in England has a circumference of 3.2 km. A car travels around the track from the southernmost point to the northernmost point. a. What distance does the car travel? b....
-
Estimate the average speed, in m/s, with which the hair on your head grows. Make this estimate from your own experience noting, for instance, how often you cut your hair and how much you trim....
Study smarter with the SolutionInn App