Ask Question
10 December, 02:24

To finance some manufacturing tools it needs for the next 3 years, waldrop corporation is considering a leasing arrangement. the tools will be obsolete and worthless after 3 years. the firm will depreciate the cost of the tools on a straight-line basis over their 3-year life. it can borrow $4,800,000, the purchase price, at 10% and buy the tools, or it can make 3 equal end-of-year lease payments of $2,140,000 each and lease them. the loan obtained from the bank is a 3-year simple interest loan, with interest paid at the end of the year. the firm's tax rate is 40%. annual maintenance costs associated with ownership are estimated at $240,000, but this cost would be borne by the lessor if it leases. what is the net advantage to leasing (nal), in thousands? (suggestion: delete 3 zeros from dollars and work in thousands.)

+4
Answers (1)
  1. 10 December, 04:39
    0
    "The answer is $106".

    After tax cost of debt 6%

    Dep per year 1600

    Tax sav from dep 640

    cost of owning 0 1

    interest - 480

    tax saving 192

    maintence - 240

    maintenece saving 96

    Depn tax saving 640

    loan repay

    net cash cost 208

    PV cost of owning (6%) - 3474

    cost of leasing

    lease payment - 2100

    Tax savings from lease 840

    net cash cost - 1260

    PV cost lease 6% - 3368

    PV cost own - Pv cost lease 106
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “To finance some manufacturing tools it needs for the next 3 years, waldrop corporation is considering a leasing arrangement. the tools will ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers