Acquisition of a new processor used in its operation

Assignment Help Financial Management

Reference no: EM131314208

The S Company is considering the acquisition of a new processor used in its operation. The processor has an installed cost of $50,000 and is expected to have a useful life of 5 years. If purchased, the firm would borrow the entire $50,000 at an interest rate of 8%. The processor would be depreciated over a 5 year ACRS life to a zero book value, but it is estimated that it could be sold for $7,000 after 5 years. A capital budgeting analysis indicates that purchase of the processor has a positive NPV. Alternatively, S Company can lease the processor for the 5 year period for an annual lease payment of $13,500. If the processor is leased, annual operating expenses of $2,700 will be paid by the lessor. If the equipment is purchased, the firm will incur this expense. S Company's cost of capital is 12% and its marginal tax rate is 35%.

If S Company borrows to purchase the processor, what is the annual loan payment?

$10,269

$14,026

$11,396

$12,523

Reference no: EM131314208

Questions Cloud

Write one page for any geology topic about griffith park : Write 1 page for any geology topic about griffith park. Its the first geology class i need it easy and simple but it should be about griffith park.

How to proceed with the new development : The goal is to have a loosely coupled, Java-based platform for this Web-based company.

Addressing challenges that arise in strategic-planning : No matter what your role is in an organization, you will most likely attend a significant number of meetings. For strategic planning in particular, meetings are an essential part of each phase of the process. What challenges have you noticed in th..

Find the time required for the water in the tank : Neglecting friction and the unsteadiness of the flow, find the time required for the water in the tank to drop from a level of 28 ft above the nozzle to the 4-ft level.

Acquisition of a new processor used in its operation : The S Company is considering the acquisition of a new processor used in its operation. The processor has an installed cost of $50,000 and is expected to have a useful life of 5 years. If purchased, the firm would borrow the entire $50,000 at an inter..

Best suited to a multinational internet retailer : What type of structure will be best suited to a multinational Internet retailer? Why? How would you recommend building a culture that was inclusive of diverse cultures and accommodates highly creative technical staff? How would you measure the suc..

Discuss about the world civilizations 3500bc-1600ad : 2 secondary sources meaning scholarly books written by a university professor. Any book in the campus library will fulfill this requirement. If you find books elsewhere and are unsure, look inside the book since many provide a biography of the aut..

How the power of compound interest increases wealth : Discuss how are interest rates in the economy related to the way people value future cash payments. How the power of compound interest increases wealth? Give one example. Discuss what is meant by the Rule of 72 and give one example.

How would you frame policy on food safety : Discussion Board: Post a response to the weekly discussion question; respond to others' postings and questions. How would you frame policy on food safety in terms of underlying social conditions?

User Account

All Pages