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Calculation of annual lease payments.

Annual lease payments start at the beginning of the year. Purchase price of machine is $200,000 and will be leased for 5 year period. Straight-line depreciation of 40,000 per year with zero book salvage value; however, salvage value is estimated to actually be $35,000 at the end of 5 yrs. The leasing company is required to ea

Lease vs Buy Decision

3. The Avionics Flying School is considering buying and installing a new $1,000,000 computerized, state-of-the-art flight simulator. They have access to the required amount of funds from sources at a 6% after-tax opportunity cost. However, Blue Sky Leasing Company has offered Avionics a lease on the same piece of equipment.

Operating Profit Margin

Income Statement Granny's Cat Farms, Inc. Year Ending December 31, 200X Revenue Gross Sales 100000 Returns 5000 Net Sales 95000 Cost of Goods Sold 40000 Gross Margin 55000 Selling General and Administrative Expenses 15000 Depreciation 1500 Rent and Utilities 12

Linear Programming: Sensitivity Analysis and Interpretation of Solution

Perform an analysis of Reep Construction's leasing problem and prepare a report for Bob Reep that summarizes your findings. Be sure to include information on and analysis of the following items. 1. The optimal leasing plan 2. The costs associated with the optimal leasing plan 3. The cost for Reep Construction to mai

Hedging: hedged item, hedging instrument, eligible risk for hedge accounting

1. Which of the following qualifies as a hedged item? a. a company's work in process inventory of unfinished washers, dryers, and refrigerators b. Credit card receivable at Sears, Roebuck and Company. c. Bushels of corn owned by the Farmers' Cooperative. d. Salaries Payable to employees of Ford Motor Company. e. a three-ye


On December 31, 2003, Focus Corporation leased equipment to Kansas Company for a 5-year period. The annual lease payment, excluding executory costs is $80,000. The interest rate for this lease is 10%. The payments are due on December 31 of each year. The first payment was made on December 31, 2003. The normal cash price for this

Income should Hazard recognize from the lease transaction

Hazard Inc. manufactures equipment that is sold or leased. On December 31, 2005, Hazard leased equipment to Robards for a five-year period expiring December 31, 2010, at which date ownership of the leased asset will be transferred to Robards. Equal $40,000 payments under the lease are due on December 31 of each year. The first p


19-4 How do you think each of the following items would affect a company's ability to attract new capital and the flotation costs involved in doing so? a) A decision of a privately held company to go public. b) The increasing institutionalization of the "buy side" of the stock and bond markets. c) The trend toward

Finance problems

1. Baxter Box Company's balance sheet showed the following amounts as of December 31st: (see chart in attached file) Last year the firm's sales were $2,000, and it had a profit margin of 10 percent and a dividend payout ratio of 50 percent. Baxter Box operated its fixed assets at 80 percent of capacity during the year. T

Finance Problems

WACC. Nodebt, Inc., is a firm with all-equity financing. Its equity beta is .80. The Treasury bill rate is 4 percent and the market risk premium is expected to be 10 percent. What is Nodebt's asset beta? What is Nodebt's weighted-average cost of capital? The firm is exempt from paying taxes. Rights. In 2001 Pandora, Inc., m

Leasing Versus Purchasing

A fishing company is considering the purchase of a new boat. The company is presently financed by a mix of 70% owners equity ad 30% debt, the after tax cost of capital is 12%. The details are as follows: (see chart in attached file) Cost of boat $20000 Useful life 4 years Salvage value 4000 Depreciation method, down to


Electronic Arts develops. Markets, publishes, and distributes interactive software games. An abridged "less commitments" footnote from the company's 2002 annual report reads: "In 2001, we renewed the lease on our headquarters facility in Redwood City, California and account for this arrangement as an operating lease. We hav


In some instances, a company might be able to lease assets at a cost less than the cost the firm would incur if it financed the purchase with a loan. If the equipment represented a significant addition to the lessee's assets, could this affect its overall cost of capital, and thus the capital budgeting decision that preceded the

Lease Problem (different values)

PV Lease Problem (Use excel pls) Annual lease payments will start at the beginning of each year. The purchase price of this machine is $250,000, and it will be leased for a period of 5 years. Utilizing straight line depreciation of $50,000 per year with a zero book salvage value. However, salvage value is estimated to actually b

Accounting Problem - Leases

On Jan 1, 2004, Haden company [ lessor] entered into a non-cancelable cancelable lease agreement with Sandy company[ lessee] for machinery was carried on the accounting records of Haden at $4,530,000 and had a market value of $4,800,000. Minimum lease payments under the lease agreement which expires on December 31, 2013 total $7

Capital and Operating Leases

Casey King Enterprises entered into two noncancelable leases for new machines to be used in its manufacturing operations. The first lease does not contain a bargain purchase option; the lease term is equal to 80% of the estimated economic life of the machine. The second lease contains a bargain purchase option; the lease term is

Need help (2 problems)

I have computed problems A through D. can you help me with E & F? See attachment as these problems line up in succession. e. Compute the aftertax cost of the borrow-purchase alternative. f. Compute the present value of the aftertax cost of the two alternatives. Use a discount rate of 8 percent.

Question about Lease vs Buy

Edison Electronics is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement. If it purchases the asset, the cost will be $8,000. It can borrow funds for four years at 12 percent interest. The firm will use the three-year MACRS depreciation category (with the associat

Edison Electronics: Lease vs. Buy

Edison Electronics is considering whether to borrow funds and purchase an asset or to lease the asset under an operating lease arrangement. If it purchases the asset, the cost will be $8,000. It can borrow funds for four years at 12 percent interest. The firm will use the three-year MACRS depreciation category (with the associat

Capital lease vs. operating lease

Under what circumstances is a capital lease a better alternative to an operating lease? Under what circumstances is a capital lease a better alternative than buying an asset?

Lease versus Buy Decision Discussed

XYZ is trying to determine to lease or buy a new computer system. Tax rate is 35%and the cost of debt is 5.5%(after tax). Lease-Annual beginning of the year payments of payments of 25,000 are required over 5 years. The lessor wil pay maintenance costs, the lessee will pay insurance and other cost. The lessee will exercise

Lease vs Buy Decision for a new computer system

If purchased, a new computer system will cost $50,000 installed. The computer system has an estimated economic life of six years. Kinko's would depreciate the computer system as a 5 year asset under MACRS rules to a $0 estimated salvage value. If purchased, Kinko's could borrow the needed funds from PNC Bank at a 10 percent pret

What is the correct discount rate to use for NAL?

In a lease vs. buy decision, what is the correct discount rate to use for NAL? For example, if a company is trying to decide whether to buy or lease a piece of machinery. The company's WACC is 10% and it could take out a loan for the machinery at 9%. There is also one more option: the company is selling an old building that i

Lease vs. Purchase Decision

JSC Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 30% tax bracket, and its after-tax cost of debt is currently 7%. The terms of the lease and the purchase are as follows: Lease Scenario: Annual end-of-year lease payments of $25,200 are required over the 3-year life

Case Analysis Mary v. Jane: what motions should be made in Texas Superior Court?

Can there be a Case Analysis formed from this Mary v. Jane? Go to the web sites recommended in the syllabus (like and ) and search for your keywords or combinations of them. Findlaw's Legal Dictionary or Cornell's "Law About..." are good places to start; search engines like Google may als

Acme External Financing Alternatives

Having previously identified the location of its greenfield investment, Acme, a multi-billion dollar public MNE that is incorporated in the U.S., must next obtain external financing for its proposed overseas production facility. It has been estimated that the acquisition will cost $500M and all funds will be secured in the U.S.

NPV Lease Analysis

A company must install $1.5 million of new equipment. It can get a loan for 100% of purchase price or lease the equipment. -The equipment falls into the MACRS 3-yr class. -Maintence expenses are $75,000 per year, payable at the beginning of each year. -Tax rate is 40% -Lease payments are $400,000 payable at the end of