What is the amount of the lease-equivalent loan

Assignment Help Corporate Finance
Reference no: EM13846569

You must show calculation detail in Excel Format to earn credit for homework assignments. I am also posting the final check numbers for all calculation Problems.

Showing calculation detail in Excel Format (with formulas posted in Excel Cells) is a must for earning any credit for homework assignments. As an alternative to an Excel Spreadsheet, you can and should also use the Worksheets provided for some of the problems in Doc Sharing. These Worksheets will save you a lot of time.

Please Note: Do not post a narrative of the calculation detail, instead you must post the calculation formulas in the Excel cells.Problem 25-6 on PurchaseVersus Lease Based on Chapter 25

Question 1:

Craxton Engineering will either purchase or lease a new $756,000 fabricator. If purchased, the fabricator will be depreciated on a straight-line basis over 7 years.

Craxton can lease the fabricator for $130,000 per year for 7 years. Craxton's tax rate is 35%. (Assume the fabricator has no residual value at the end of the 7 years.)

a) What are the free cash flow consequences of buying the fabricator if the lease is a true tax lease?

b) What are the free cash flow consequences of leasing the fabricator if the lease is a true tax lease?

c) What are the incremental free cash flows of leasing versus buying?

Question 2:

Riverton Mining plans to purchase or lease $220,000 worth of excavation equipment. If purchased, the equipment will be depreciated on a straight-line basis over 5 years, after which it will be worthless. If leased, the annual lease payments will be $55,000 per year for 5 years.

Assume Riverton's borrowing cost is 8%, its tax rate is 35%, and the lease qualifies as a true tax lease.

a) If Riverton purchases the equipment, what is the amount of the lease-equivalent loan?

b) Is Riverton better off leasing the equipment or financing the purchase using the lease equivalent loan?

c) What is the effective after-tax lease borrowing rate? How does this compare to Riverton's actual after-tax borrowing rate?

Reference no: EM13846569

Questions Cloud

Reading the articles of the constitution t : After reading the Articles of the Constitution that pertain to war powers, and the commentary over the debate; do you feel the executive branch should have as much power as it seems to have regarding war decisions? Do you feel the Supreme Court has t..
Departments/agencies have played in foreign : Identify at least one role that each of the following departments/agencies have played in foreign or defense policy: the State Department, the Defense Department, the CIA, and the NSC. Explain if you feel that the role you identified is a proper role..
What is a reference group : What is a reference group? Describe three different types of reference groups that can have an impact on a consumer's purchasing behavior.
Enter a negative numbe : A product sells for $83 per unit, and its variable costs per unit are $71. The fixed costs are $10,479. If the firm wants to earn $31,327 pretax income, how many units must be sold? Answer to nearest whole dollar without any commas or decimal points ..
What is the amount of the lease-equivalent loan : What are the free cash flow consequences of buying the fabricator if the lease is a true tax lease and what is the effective after-tax lease borrowing rate? How does this compare to Riverton's actual after-tax borrowing rate?
Provide examples of how disney can generate : Provide examples of how Disney can generate more loyalty through "touch points". Please be sure to cite at least 7 specific touchpoint which can be altered in a way to generate more loyalty. Avoid general answers such as "improve customer service".
Which of the following types of multiplexing : Which of the following types of multiplexing is least efficient for data transmission? a. frequency division of multiplexing b. statistical time division multiplexing  c. time division multiplexing
The price of fuel : A major topic of discussion today is the price of fuel. Over the past several years the price paid for a gallon of gasoline, diesel fuel, or jet fuel has been fluctuating. Indeed, all products that are derived from crude oil have been affected. In yo..
Consider the topic of work life balance in an organization : Consider the topic of work / life balance in an organization. How should managers handle the personal needs of employees? How should employees handle the stress of their personal and professional lives? Is there really such a concept of work / life b..

Reviews

Write a Review

Corporate Finance Questions & Answers

  Impact of the global economic crisis on business environment

This paper reviews the article of ‘the impact of the global economic crisis on the business environment' that is written by Roman & Sargu (2011).

  Explain the short and the long-run effects on real output

Explain the short and the long-run effects on real output, price, and unemployment

  Examine the requirements for measuring assets

Examine the needs for measuring assets at fair value in accounting standards

  Financial analysis report driven by rigorous ratio analysis

Financial analysis report driven by rigorous ratio analysis

  Calculate the value of the merged company

Calculate the value of the merged company, the gains (losses) to each group of shareholders, NPV of the deal under different payment methods. Synergy remains the same regardless of payment method.

  Stock market project

Select five companies for the purpose of tracking the stock market, preparing research on the companies, and preparing company reports.

  Write paper on financial analysis and business analysis

Write paper on financial analysis and business analysis

  Intermediate finance

Presence of the taxes increase or decrease the value of the firm

  Average price-earnings ratio

What is the value per share of the company's stock

  Determine the financial consequences

Show by calculation the net present value for the three alternatives (no education, network design certification, mba). Also, according to NPV suggest which alternative you advise your friend to choose

  Prepare a spread sheet model

Prepare a spread sheet model for the client that determines NPV/IRR with and without tax.

  Principles and tools for financial decision-making

Principles and tools for financial decision-making. Analyse the concept of corporate capital structure and compute cost of capital.

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