Problem 21-10 Leasing and Salvage ValueThe Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business. Management has decided that itmust use the system to stay competitive; it will provide $3.6 million in annual pretax costsavings. The system costs $8.6 million and will be depreciated straight-line to zeroover five years. Wildcat's tax rate is 21 percent and the firm can borrow at 7 percent.Lambert's policy is to require its lessees to make payments at the start of theyear. Suppose it is estimated that the equipment will have an aftertax residual value of$820,000 at the end of the lease. What is the maximum lease payment acceptable toWildcat? (Do not round intermediate calculations and enter your answer in dollars, notmillions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)Lease payment

Answered: Problem 21-10 Leasing and Salvage Value…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 8PROB

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Question 5 The Beautyqueen Company is trying to decide whether to lease or buy a new computer assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $10,000 in annual pretax cost savings. The system costs $680,000 and will be depreciated straight-line to zero over five years. Beautyqueen's tax rate is 23 percent, and the firm can borrow at 9 percent. Lambert Leasing Company has offered to lease the drilling equipment to Beautyqueen for payments of $43,000 per year. Lambert's policy is to require its lessees to make payments at the end of the year. a. What is the NAL for Beautyqueen? b. What is the reservation Payment of Lessor?
Problem 3 A piping contractor is considering the purchase of a number of pipe laying machines for a project that will last for 6 years. Each machine will cost $ 50,000.00 and have no salvage value at the end of the project. In determining whether to make this purchase, straight line deprecation can be used and an annual income tax on profits of of 34%, and an after-tax MARR is 8%. What is the minimum annual net benefit before taxes that must be generated by the each machine in order to justify its purchase? Answer:
Question 13 - The Wildcat Oil Company is trying to decide whether it will purchase or lease a computer assisted drilling system for its oil exploration operations. The management of the company has come to the conclusion that to remain competitive the company must use the system; this will provide the company with annual pre-tax savings of $300,000. The cost of the system is $2.75 million and will be fully amortized on a straight-line basis over 5 years. The company can borrow at 9%. The Southtown Leasing Company has offered to lease the equipment to Wildcat for an annual payment of $620,000. As a policy Southtown asks its tenants to make rental payments upfront. a) What is the ANL for Wildcat? What is the maximum rental amount that should accept the company? b) Assuming the equipment is estimated to have an after-tax residual value of $250,000 at the end of the lease period, what is the maximum lease amount that Wildcat should be willing to pay? c) Many landlords ask tenants for a…
QUESTION 7 Massey Enterprises is planning to buy a new machine to decrease the overall cost of production. This machine will cost $50000 and will help to save the company $22000 in operating costs annually. The machine will be fully depreciated using a straight-line depreciation method to a useful life of 4 years. The actual market value of the machine is expected to be zero at the termination of the project. The marginal tax rate for the company is 21 and the discount rate for this project is 11 percent. What is the net present value of this 4-year project?
#34 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 15 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.96 million per year and increased operating costs of $689,148.00 per year. Caspian Sea Drinks' marginal tax rate is 28.00%. The internal rate of return for the RGM- 7000 is Submit Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) unanswered not_submitted Attempts Remaining: Infinity
#37 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $15.00 million fully installed and will be fully depreciated over a 18.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.83 million per year and increased operating costs of $681,996.00 per year. Caspian Sea Drinks' marginal tax rate is 20.00%. The incremental cash flows for produced by the RGM-7000 are Submit Answer format: Currency: Round to: 2 decimal places. unanswered not_submitted Attempts Remaining: Infinity
#17 Daily Enterprises is purchasing a $10.51 million machine. It will cost $50,155.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.48 million per year along with incremental costs of $1.46 million per year. Daily's marginal tax rate is 34.00%. The cost of capital for the firm is 15.00%. (answer in dollars..so convert millions to dollars) What is the year 0 cash flow for the project? Submit Answer format: Currency: Round to: 2 decimal places.
Problem 21-9 Lease or Buy The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2 million in annual pretax cost savings. The system costs $9.3 million and will be depreciated straight-line to zero over its five-year life, after which it will be worthless. Wildcat's tax rate is 22 percent and the firm can borrow at 8 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $2,150,000 per year. Lambert's policy is to require its lessees to make payments at the start of the year. a. What is the NAL for Wildcat? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the maximum lease payment that would be acceptable to Wildcat? (Do not round intermediate…
Question 17 A $65,000 machine with a 7-year class life was purchased 2 years ago. The machine will now be sold for $50,000 and replaced with a new machine costing $78,000, with a 10-year class life. The new machine will non increase sales, but will decrease operating costs by $13,000 per year. Simplified straight line depreciation is employed for both machines, and the marginal corporate tax rate is 34 percent. What is the incremental annual cash flow associated with the project?
#1 Caspian Sea Drinks is considering the purchase of a new water filtration system produced by Rube Goldberg Machines. This new equipment, the RGM-7000, will allow Caspian Sea Drinks to expand production. It will cost $12.00 million fully installed and will be fully depreciated over a 17.00 year life, then removed for no cost. The RGM-7000 will result in additional revenues of $2.64 million per year and increased operating costs of $779,569.00 per year. Caspian Sea Drinks' marginal tax rate is 23.00%. The incremental cash flows for produced by the RGM-7000 are _____. Answer format: Currency: Round to: 2 decimal places.
Question 9 Daily Enterprises is purchasing a $9.6 million machine. It will cost $52,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.1 million per year along with incremental costs of $1.1 million per year. Daily's marginal tax rate is 21%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine? The free cash flow for year 0 will be $nothing. (Round to the nearest dollar.) The free cash flow for years 1–5 will be $_______________________ (Round to the nearest dollar.)
Problem 21-11 Deposits in Leasing The Wildcat Oil Company is trying to decide whether to lease or buy a new computer- assisted drilling system for its oil exploration business. Management has decided that it must use the system to stay competitive; it will provide $2.6 million in annual pretax cost savings. The system costs $7.7 million and will be depreciated straight-line to zero over its five-year life, after which it will be worthless. Wildcat's tax rate is 21 percent and the firm can borrow at 6 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1,660,000 per year. Lambert's policy is to require its lessees to make payments at the start of the year. Suppose Lambert requires Wildcat to pay a $790,000 security deposit at the inception of the lease. Calculate the NAL with the security deposit. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g.,…

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