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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 $66,000 for five years, due at the beginning of each year. This machine will save Farmer $16,000 per year through reductions in electricity costs. As an alternative, Farmer can purchase a more energy-efficient machine from Basic Machine Corporation (BMC) for $335,000. This machine will save $26,000 per year in electricity costs. A local bank has offered to finance the machine with a $335,000 loan. The interest rate on the loan will be 8 percent on the remaining balance and will require five annual principal payments of $67,000. Farmer has a target debt-to-asset ratio of 62 percent. Farmer is in the 30 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 Net Advantage to leasing (NAL) in $?
b. How much debt is displaced by the lease? PV = _______
RileyCorp. has earnings after taxes of $210,000. Interest expense for the year was $40,000; preferred dividends paid were $45,000; and common dividends paid were $30,000. Taxes were $22,700. The firm has 100,000 shares of common stock outstanding. Ea..
Gilbert is considering purchasing the Side Steamer 3000 which cost $12,000 and has an estimated useful life of 6 years with an estimate salvage value of $1,500. This steamer falls into the NARC 5-year class with rates as 20.00%, 32.00%, 19.20%, 11.52..
Preston Inc.'s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a -18% return. What is the firm's expected rate of return?
Case study operational risks and Financial Risk Management
A new security system has a price-tag of $8,000.00, but should save your company $3,000.00 each year for the next 10 years in reduced thefts. What is the IRR of the security system?
A project has an initial cost of $70,925, expected net cash inflows of $11,000 per year for 11 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Roun..
What is Moda Textile Factory's competitive advantage?
If you want to have $1,250,000 at retirement in 32 years, how much will you have to save every two weeks at 10.5% to achieve the goal? If you have $1,000,000 at retirement, how much can you withdraw every month over the 25 years of your retirement if..
Explain if the source of cash sustainable, and list any outstanding variances - Write down what processes and data you would analyse when looking at the following scenarios and write down any improvements.
A corporation must determine their tax liability on certain intangible assets such as goodwill, copyrights, and patent acquisitions. What method of deduction is the most appropriate?
Company XYZ had $410 million in sales last year, and it had $75 million of fixed assets that were being operated at 80% of capacity. How large could sales have been (in Millions) if the company had operated at full capacity?
A company is composed of five cost centers. Each month a budget is prepared anticipating the distribution of overhead costs to the centers. Let Cw be costs incurred within the cost center, such as depreciation, supplies and indirect labor, and let Cm..
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