What is breakeven rate to return of purchase versus lease

Reference no: EM13690969

A plant can purchase for $1,000,000 or it can be leased for 200,000 per year. The annual income is expected to be $800,000 with the annual operating cost of 200,000. The resale value of the plant is estimated to be $400,000 at the end of its 10-year life. The company’s combined federal and state income tax rate is 40%. A straight-line depreciation can be used over the 10 years with the full first-year depreciation.

a) If the company uses the after-tax minimum attractive rate of 10%, should it lease or purchase the plant.

b) What is the breakeven rate to return of purchase versus lease?

Reference no: EM13690969

Questions Cloud

Are goods x and y complements or substitutes : Suppose you have the following demand function for the good x: x* = 80(py/px) - 0.5I. Are goods x and y complements or substitutes? How do you know?. Does good x demand satisfy the first law of demand? Why or why not?

They had received an equivalent amount of cash assistance : There are many "in-kind" versus cash payments made by the government to citizens such as food stamps, medical care, and public housing.

What rate of return would be earned on the mine : A mine is for sale for $450,000. It is believed the mine will produce a profit of $100,000 the first year, but the profit will decline $5000 a year after that, eventually reaching zero, whereupon the mine will be worthless. What rate of return would ..

Compare and contrast the value-generation potential : A soft drink company’s merger with a long-haul trucking company, described by the former’s CEO: “This is a great merger: the two products are unrelated, but their joint ownership will reduce our shipping costs; our earnings volatility will decrease a..

What is breakeven rate to return of purchase versus lease : A plant can purchase for $1,000,000 or it can be leased for 200,000 per year. The annual income is expected to be $800,000 with the annual operating cost of 200,000. The resale value of the plant is estimated to be $400,000 at the end of its 10-year ..

The weight of labrador retrievers is normally distributed : The weight of Labrador Retrievers is normally distributed with Mean 73 lbs and Standard Deviation 12 lbs. Shade in and calculate the probability that a randomly selected dog weighs less than 75 lbs.

Effective tax rate : Granny’s Butter and Egg Business is such that she pays an effective tax rate of 40%. Granny is considering the purchase of a new Turbo Churn for $25,000. This churn is special handing device for food manufacture and has an estimated life of 4 years a..

What is the level of saving and consumption : What is the level of saving and consumption in the U.S. today? As a consumer should you be saving or consuming? Is this something the government should try and influence?

Perception of how a tax rate cut affects tax revenues : Compare the common perception of how a tax rate cut affects tax revenues with economist Laffer's theory.

User Account

All Pages