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40.
Baxter Contractors is evaluating the lease versus the purchase of a
$329,000 machine. The machine will be depreciated using MACRS over a 4-
year period, after which the machine will be worthless. MACRS allows for
33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation
over years 1 to 4, respectively. The machine could be leased for $105,000 a
year for 4 years. The firm can borrow money at 9.5 percent and has a 35
percent tax rate. The firm does not expect to pay any taxes for the next 5
years. What is the net advantage to leasing?
41.
Frozen Foods Delivery is considering the purchase of a delivery truck
costing $49,000. The truck can be leased for 3 years at $19,500 per year or
it can be purchased at an interest rate of 7.5 percent. The estimated life of
the truck is 3 years. The corporate tax rate is 34 percent. The company does
not expect to owe any taxes for the next several years due to accumulated
net operating losses. The firm uses straight-line depreciation. What is the
net advantage to leasing?
42.
Cayman Productions is considering either leasing or buying some new
underwater photographic equipment. The lessor will charge $26,900 a year
for a 2-year lease. The purchase price is $48,600. The equipment has a 2-
year life after which time it will be worthless. Cayman uses straight-line
depreciation, borrows money at 8 percent, and has sufficient tax loss
carryovers to offset any taxes which otherwise might be owed for the next 4
years. What is the net advantage to leasing?
43.
Green Valley Farms is considering either leasing or buying some new farm
equipment. The lessor will charge $27,500 a year for a 5-year lease. The
purchase price is $136,000. The equipment has a 5-year life after which
time it will be worthless. Green Valley Farms uses straight-line
depreciation, has a 32 percent tax rate, borrows money at 10 percent, and
has sufficient tax loss carryovers to offset any potential taxable income the
firm might have over the next five years. What is the net advantage to
leasing?
44.
Cool Treats is considering either leasing or buying a new freezer unit. The
lessor will charge $11,900 a year for a 2-year lease. The purchase price is
$32,000. The freezer has a 2-year life after which time it is expected to have
a resale value of $9,000. Cool Treats uses straight-line depreciation,
borrows money at 8 percent, and has sufficient tax loss carryovers to offset
any potential taxable income the firm might have over the next 5 years.
What is the net advantage to leasing?
45.
Williams' Paints is weighing a lease versus a purchase of some new
machinery. The purchase price is $312,000. The equipment will be
depreciated to zero over the 4-year life of the project after which time it is
expected to have a resale value of $76,000. The firm uses straight-line
depreciation and can borrow money at 8 percent. The equipment can be
leased for $66,000 a year for 4 years. Williams' Paints does not expect to
owe any taxes for the next 4 years because of its net operating losses. What
is the net advantage to leasing?
46.
Bob's Pizza is considering either leasing or buying a new oven. The lease
payments would be $10,200 a year for 3 years. The purchase price is
$29,000. The equipment has a 3-year life and then is expected to have a
resale value of $3,100. Bob's Pizza uses straight-line depreciation, borrows
money at 10 percent, and has a 32 percent tax rate. What is the net
advantage to leasing?
47.
Charleston Marina is considering either leasing or buying some new
equipment it needs for repairing boats. The lease payments would be
$7,200 a year for 3 years. The purchase price is $20,800. The equipment has
a 3-year life and then is expected to have a resale value of $4,700. The firm
uses straight-line depreciation, borrows money at 8.5 percent, and has a 34
percent tax rate. What is the net advantage to leasing?
48.
Fargo North is considering the purchase of some new equipment costing
$118,000. This equipment has a 5-year life after which it will be worthless.
The firm uses straight-line depreciation and borrows funds at 9 percent
interest. The company's tax rate is 33 percent. The firm also has the option
of leasing the equipment. What is the amount of the break-even lease
payment?
49.
A firm borrows money at 8.75 percent, uses straight-line depreciation, and
has a 37 percent tax rate. The firm's break-even aftertax annual lease
payment on a machine is $16,511. How much will the firm have to pay
annually to the lessor to lease this machine?
50.
Fireplaces and More is considering the purchase of a delivery truck costing
$27,000. The truck will be used for 5 years and then it will be worthless. The
financing rate for the purchase is 7.5 percent and the corporate tax rate is
32 percent. The firm uses straight-line depreciation. What is the break-even
lease payment amount?
51.
Your firm is considering either leasing or buying some new equipment. The
lessor will charge $13,800 a year for 4 years should you decide to lease. The
purchase price is $47,800. The equipment has a 4-year life after which it is
expected to have a resale value of $8,400. Your firm uses straight-line
depreciation, borrows money at 10 percent, and has a 33 percent tax rate.
What is the aftertax salvage value of the equipment?
52.
J&K Enterprises is considering either leasing or buying some new
equipment. The lease payments would be $3,800 a year. The purchase price
is $19,900. The equipment has a 6-year life after which it is expected to
have a resale value of $2,100. Your firm uses straight-line depreciation,
borrows money at 11.5 percent, and has a 33 percent tax rate. What is the
aftertax salvage value of the equipment?
53.
Cross Town Express is contemplating the acquisition of some new
equipment. The purchase price is $74,000. The equipment would be
depreciated using MACRS depreciation which allows for 33.33 percent,
44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to
4, respectively. The equipment would be worthless after that time. The
equipment can be leased for $19,100 a year for 4 years. The firm can
borrow money at 9.5 percent and has a 28 percent tax rate. What is the
incremental annual cash flow for year 3 if the company decides to lease the
equipment rather than purchase it?
54.
Interstate Services needs some equipment costing $61,000. The equipment
has a 4-year life after which it will be worthless. The firm uses MACRS
depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent,
and 7.41 percent depreciation over years 1 to 4, respectively. The
equipment can be leased for $16,000 a year. The firm can borrow money at
7.5 percent and has a 36 percent tax rate. What is the incremental annual
cash flow for year 2 if the company decides to lease the equipment rather
than purchase it?
55.
Morrison Industrial Tool can either lease or buy some equipment. The lease
payments would be $12,400 a year. The purchase price is $34,900. The
equipment has a 3-year life after which it is expected to have a resale value
of $5,500. The firm uses straight-line depreciation over the asset's life,
borrows money at 8 percent, and has a 34 percent tax rate. What is the
incremental cash flow for year 1 if the company decides to lease the
equipment rather than purchase it?
56.
A firm can either lease or buy some new equipment. The lease payments
would be $18,500 a year for 4 years. The purchase price is $72,900. The
equipment has a 4-year life after which it is expected to have a resale value
of $3,600. The firm uses straight-line depreciation over the life of the asset,
borrows money at 11 percent, and has a 35 percent tax rate. The company
does not expect to owe any taxes for at least 4 years because it has
accumulated net operating losses. What is the incremental cash flow for
year 3 if the company decides to lease rather than purchase the
equipment?
57.
Daily Enterprises is contemplating the acquisition of some new equipment.
The purchase price is $46,000. The company expects to sell the equipment
at the end of year 4 for $2,500. The firm uses MACRS depreciation which
allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent
depreciation over years 1 to 4, respectively. The equipment can be leased
for $12,300 a year for 4 years. The firm can borrow money at 7.5 percent
and has a 35 percent tax rate. What is the incremental annual cash flow for
year 4 if the company decides to lease the equipment rather than purchase
it?
