Determine the firm cash inflows and outflows

Reference no: EM13747451

A firm wants the use of a machine that costs $100,000. If the firm purchases the equipment, it will depreciate the equipment at the rate of $20,000 a year for four years, at which time the equipment will have a residual value of $20,000. Maintenance will be $2,500 a year. The firm could lease the equipment for four years for an annual lease payment of $26,342. Currently, the firm is in the 40 percent income tax bracket.

a) Determine the firm's cash inflows and outflows from purchasing the equipment and from leasing.

b) If the firm uses a 14 percent cost of funds to analyze decisions that involve payments over more than a year, should management lease the equipment or purchase it?

c) Would your answer differ if the cost of funds were 8 percent?

Reference no: EM13747451

Questions Cloud

Define externalities in consumption and production : Define externalities in consumption and production of goods and services. Why do they occur

The most important communication skills : What, in your opinion, are the most important communication skills an effective manager should have to be successful in a diverse work environment? Provide your rationale.

A spring is hanging from the ceiling of an elevator : A spring is hanging from the ceiling of an elevator, and a 5.0-kg object is attached to the lower end. By how much does the spring stretch (relative to its unstrained length) when the elevator is accelerating upward at ?

Market price of the stock affected by the announcement : Some companies' debt-equity targets are expressed not as a debt ratio, but as a target debt rating on a firm's outstanding bonds. What are the pros and cons of setting a target rating, rather than a target ratio - How is the market price of the sto..

Determine the firm cash inflows and outflows : Determine the firm's cash inflows and outflows from purchasing the equipment and from leasing.

Analyze and rank the sources with regard to reliability : Using the Web and other venues of your choice, identify three to four sources of information for trend data about the subject you chose in Step 2. Analyze and rank the sources with regard to (1) Reliability, (2) Believability, (3) Pertinence to yo..

What is its internal rate of return : What is its internal rate of return and In capital budgeting, risk can be measured from three perspectives. What are those three measures of a project's risk

Reasonable stock-to-bond ratio : How would the asset allocation differ between a 25 year-old who is saving for retirement and a 67 year-old who is beginning retirement?

Explain working conditions experienced by women and children : This writing assignment explores the working conditions experienced by women and children after the depression of the 1890s.

User Account

All Pages