What is the nal of leasing

Assignment Help Financial Management
Reference no: EM13878434

High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. The lease payments will be $77,000 for five years, due at the beginning of each year. This machine will save Farmer $27,000 per year through reductions in electricity costs. As an alternative, Farmer can purchase a more energy-efficient machine from Basic Machine Corporation (BMC) for $390,000. This machine will save $37,000 per year in electricity costs. A local bank has offered to finance the machine with a $390,000 loan. The interest rate on the loan will be 11 percent on the remaining balance and will require five annual principal payments of $78,000. Farmer has a target debt-to-asset ratio of 68 percent. Farmer is in the 40 percent tax bracket. After five years, both machines will be worthless. The machines will be depreciated on a straight-line basis.

a. What is the NAL of leasing? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NAL        $

b. How much debt is displaced by this lease? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

PV          $

Reference no: EM13878434

Questions Cloud

Prepare an income statement for last year : Hill Street Electronics has provided the following information for last year:
Create a database to store information : Assume that you want to create a database to store information about your music collection. You want to be able to query the database for each of the following attributes: • A particular title (for example, Tapestry or Beethoven's Fifth Symphony) • A..
Default rules that appear in the executable rules folder : 1)Based on the default rules that appear in the Executable Rules folder, which programs can a typical user run on a Windows 8 workstation? Which programs can members of the Administrators group run?
Industrial production rate and the inflation rate : Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5% and IR 6%. A stock with a beta of 1 on IP and 0.5 on IR currently is expected to provide a rate..
What is the nal of leasing : High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis.  What is the NAL ..
Calculate the unit cost and the total cost : Lima Company manufactured 30,000 units of product last month and identified the following costs associated with the manufacturing activity:
Biggest challenge in terms of cross-cultural management : the biggest challenge in terms of cross-cultural management
What is the revaluation model of accounting : Intangible assets acquired via a separate acquisition are always recognised - how is an intangible asset acquired as part of a business combination measured for initial recognition? Why?
New investment that plans to finance using one-third debt : The Walgreen Corporation is contemplating a new investment that it plans to finance using one-third debt. The firm can sell new $1000 par value bonds with a 15 year maturity at a price of $947 that carries a coupon interest rate of 12.8 percent that ..

Reviews

Write a Review

 

Financial Management Questions & Answers

  An individual investor considers investing

An individual investor considers investing in an XYZ Corp. bond decides not to purchase the bond. Which of the following statements is most correct?

  Describe the concept of zero-base budgeting

Explain the concept of management control and how budgeting is used as part of it - Describe the concept of zero-base budgeting.

  Receivables investment

McDowell Industries sells on terms of 3/10, net 25. Total sales for the year are $1,086,500; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 62 days after their purchases. What is the days' sales outs..

  What do we mean by discounted cash flow valuation

How does compound interest differ from simple interest? What happens to a future value if you increase (decrease) the interest rate? Explain why. What happens to a present value if you increase (decrease) the discount rate? Explain why. What do we me..

  What is the stocks expected price

Whited Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now?

  Negotiating a lease on a new piece of equipment

ABC Industries is negotiating a lease on a new piece of equipment which would cost $100,000 if purchased. The equipment falls into the MACRS 3-year class, and it would be used for three years and then sold, because ABC plans to move to a new facility..

  The aqua liquid assets money market mutual fund

The Aqua Liquid Assets Money Market Mutual Fund has a NAV of $1 per share. During the year, the assets held by this fund appreciated by 1.1 percent. If you had invested $15,000 in this fund at the start of the year, how many shares would you own at t..

  Total corporate plus personal rates paid on debt

Suppose that, in an effort to reduce the federal deficit, Congress increases the top personal rate on interest and dividends to 35% but retains a 15% tax rate on realized capital gains. The corporate tax stays at 35%. Compute the total corporate plus..

  What is the minimum number of bonds firm must sell to raise

The Merry Weather Firm wants to raise $21 million to expand its business. To accomplish this, the firm plans to sell 10-year, $1,000 face value zero-coupon bonds. The bonds will be priced to yield 7 percent. What is the minimum number of bonds the fi..

  Two loans generate approximately the same income

Assume that a customer borrows $230,000 for one year from your bank. As a loan officer, you offer the customer the loan if they agree to pay $19,500 in interest, plus agree to pay the $230,000 back at the end of one year. What is the APR? At what dis..

  Distinguish between pure risk and speculative risk

Distinguish between pure risk and speculative risk. List and explain in detail the three kinds of pure risk. Explain the concept of Enterprise Risk Management. How does it differ with the holistic risk management approach? Why did the Harvard Busines..

  Key objective of corporate financial management

Explain the key objective of corporate financial management and why this might not be the same as maximising accounting profit and describe the principal characteristics of primary and secondary capital markets.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd