Calculate the incremental npv of the lease agreement

Assignment Help Corporate Finance
Reference no: EM13214455

Allied Constructions Limited is considering entering into a lease agreement that contains the following information for a new machine:? Lease payment (in advance) = $120,000 per year? Lease term = 5 years? Purchase cost = $500,000? Depreciation per year = 20% of purchase cost? Residual value = $50,000? Salvage value = $20,000The relevant tax rate is 35%. Tax savings on the lease will be recorded in the same year as the lease payments. The company's before tax cost of debt is 8% per annum. Calculate the incremental NPV of the lease agreement and ascertain if the company should take out the lease.

Reference no: EM13214455

Questions Cloud

What is probability that at least 4 will pay : On amazon.com, 45 percent of customers pay by American Express credit card. Suppose we have a sample of 5 customers, what is the probability that at least 4 will pay by American Express
Determine whether the project should be undertaken : The firm is an ongoing profitable business and pays taxes at a 30% rate in the year of income. It uses a 15% discount rate on the new project. Using the NPV approach, determine whether the project should be undertaken.
What is probability that the distance from house to school : The distance from a student's house to campus is a uniformly distributed random variable that ranges between 15 and 75 minutes. What is the probability that the distance from house to school will be between 20 and 40 minutes
Solve the equations for the equilibrium values of c and i : Assume that the following equations characterize a large open economy: (1) Y = 5,000 (2) Y = C + I + G + NX (3) C = 1/2(Y - T) (4) I = 2,000 - 100r (5) NX = 500 - 500? (6) CF = -100r (7) CF = NX (8) G = 1,500 (9) T = 1,000
Calculate the incremental npv of the lease agreement : Calculate the incremental NPV of the lease agreement and ascertain if the company should take out the lease.
Define molecules are present in relatively large proportions : What ions and/or molecules are present in relatively large proportions in a solution of the soluble ionic compound KCl (aq)?
Why did the us withdraw form the bretton woods system : What conditions will one observe floating exchange rates operating in the gold standard system and explain why the expectation of inflation in country A will lead to a higher nominal rate of interest on securities denominated in A'S currency, but h..
What is atc per unit for each level of output listed : Assume that the most efficient production technology available for making vitamin pills has the cost structure given in the following table. Note that output is measured as the number of bottles of vitamins produced per day and that costs include ..
Explain what is the mass of a single washer in milligrams : the mass of a box containing 1000 washers. The mass is 0.2932 kg. What is the mass of a single washer in milligrams? Write your answer as a decimal.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Determine the combined return of transactions

Over the last year, Dollar has depreciated about 10 percent against the Euro. A year ago you took out a home equity loan in the United State at an interest rate of 8 percent.

  Find the initial cost and total value

The management of Mitchell labs announced to go private in 2002 by purchasing in all 3 million of its outstanding shares at 19.50/share. By 2006 management had restructured the firm by selling off petroleum research division for 13 million.

  Influencing state revenue collections and expenditures

Explain why state governments cut spending or rising taxes when revenues fall short of expenditures?

  Compute the debt to equity ratios

Considering the following three companies:  i) eBay ii) The Clorox Company (CLX) iii) Alaska Air Group, Inc. (NYS: ALK).

  What is the most you would be willing to pay per share

If you can earn 13% on similar-risk investments, what is the most you would be willing to pay per share and if you can earn only 10% on similar-risk investments, what is the most you would be willing to pay per share?

  Evaluate operating income for both firms

What is the operating income (EBIT) for both firms and what are the earnings after interest - Why are the percentage changes different

  Evaluating financial statement data

Horizontal analysis is a technique for evaluating financial statement data and Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time

  Construct a pro forma income statement for 2002

Calculate the direction and magnitude of the percentage price change due to the change in yield and construct a pro forma income statement for 2002, assuming the financing plan is adopted.

  Acquire the icx system and replace the old system

What are the annual net cash flows associated with the purchase of this machine? Also compute the net investment (NINV) for this project.

  Submit a cash budget for the next calendar year

What is the highest cumulative amount that needs to be borrowed during this 12 month period? Use the roundup function to round this amount to the highest thousand dollar amount.

  Ineffective and interferes with free market movements

Does self-regulation work? Give examples of where it has worked well and where it has not and-one argument is that self-regulated businesses with amenities attract more (and better) labor, forcing other businesses to improve in order to hire.

  Foreign exchange hedging using foreign currency derivatives

The budget rate, the lowest acceptable dollar per pound exchange rate, was therefore established at $1.70 per British pound. Any exchange rate below would result in Dayton actually losing money on the transaction.

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