Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 7% per year. Jeff & Bezos pays income taxes using 25% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $6,800,000. The fleet of drones, due to their heavy usage, would have no salvage value in four years. If the company chooses to buy them, the drones would be losing their economic value following the three-year property class under the MACRS depreciation method. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $1,950,000 per year for four years from a different company, Nets & Flicks, that currently owns the required number of the drones. Jeff & Bezos' net advantage to leasing, a.k.a. NAL, equals (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. If your answer is negative, don't forget to put the minus sign.)

Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 7% per year. Jeff & Bezos pays income taxes using 25% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $6,800,000. The fleet of drones, due to their heavy usage, would have no salvage value in four years. If the company chooses to buy them, the drones would be losing their economic value following the three-year property class under the MACRS depreciation method. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $1,950,000 per year for four years from a different company, Nets & Flicks, that currently owns the required number of the drones. Jeff & Bezos' net advantage to leasing, a.k.a. NAL, equals (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. If your answer is negative, don't forget to put the minus sign.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 24 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $6,300,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a six year period. The fleet of drones, due to their heavy usage, would have no salvage value in six years. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $1,260,000 for six years from a different company. What should Jeff & Bezos do? Should the company buy or lease the drones? Calculate the net advantage to leasing, a.k.a. NAL, for Jeff & Bezos. (Do not round intermediate…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8% per year. Jeff & Bezos pays income taxes using 22% tax rate. The company would like to start using high speed low-altitude drones to deliver grocery purchases directly to residential customers backyards. Doing so would bring the company pre-tax savings in the amount of $3.2 million each year. The required fleet of drones costs $8.3 million. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a five year period. The fieet of drones, due to their heavy usage, would have no salvage value at the end. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing the drones for a lease term that matches the drones" economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. The…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 22 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. The required fleet of drones costs $7,500,000. The fleet of drones, due to their heavy usage, would have no salvage value in four years. If the company chooses to buy them, the drones would be losing their economic value following the three-year property class under the MACRS depreciation method. Instead of buying the fleet of the drones, Jeff & Bezos is also contemplating leasing them for an estimated pre-tax annual cost of $2,205,000 per year for four years from a different company, Nets & Flicks, that currently owns the required number of the drones. Jeff & Bezos' net advantage to leasing, a.k.a. NAL, equals (Do not round intermediate calculations and round your…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 24 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $3.2 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $2,130,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $9.9 million. If the company chooses to buy them, the drones would be…
Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 7% per year. Jeff & Bezos pays income taxes using 24% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that cumently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $5,800,000. If the company chooses to buy them the drories would be losing their economic value following the straight-line depreciation method during a five year period. The fleet of drones, due to their heavy usage, would have no salvage value in five years. Calculate the pre-tax lease payment that would make both Jeff…
Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. By doing so, the company would be saving $1.4 million pre-tax every single year. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently owns the required number of the drones. Doing that would have an estimated pre-tax annual cost of $1,970,000. Nets & Flicks' requirement is that the lease payments are made by Jeff & Bezos at the beginning of each year. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $8.8 million. If the company chooses to buy…
Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 8 % per year. Jeff & Bezos pays income taxes using 21 % tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $5,000,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a four year period. The fleet of drones, due to their heavy usage, would have no salvage value in four years. Calculate the pre-tax lease payment that would make both Jeff & Bezos and Nets…
Jeff & Bezos is a fresh groceries delivery company. They have access to borrowing funds at a pre-tax rate of 6 % per year. Jeff & Bezos pays income taxes using 21% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Jeff & Bezos is contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets & Flicks, that currently own the required number of the drones. Instead of leasing the fleet of the drones, Jeff & Bezos is also contemplating buying them, which would cost the company $4,500,000. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a three year period. The fleet of drones, due to their heavy usage, would have no salvage value in three years. Calculate the pre-tax lease payment that would make both Jeff & Bezos and…
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