The smiths are not sure whether they should buy or lease equipment. A five year lease could be arranged with annual lease payment of 5000$ payable at beginning of each year. The tax shield from lease payment is available at year end. The company tax rate is 25%. The equipment would cost $25000 and has a five year expected lifespan, and no residual value is expected. if purchased, asset would be financed through a term loan at 12%. The loan calls for equally payment to be made at end of end year for five years. Suppose that the equipment would qualify for CCA on a straight-line basis over five years. Required: 1. Calculate the cash flows for each financing alternate. 2. Which alternative is the most economical.
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- Al-Tek is considering leasing some new equipment for 5 years with annual payments. The equipment would cost $115,000 to buy and would be depreciated straight-line to a zero salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 8 percent. The lessee does not expect to owe taxes for several years. The lessor’s tax rate is 35 percent. What is the minimum lease payment that will be acceptable to both parties?Nu-Tek is considering leasing some equipment for 4 years with equal annual lease payments. The equipment would cost $74,000 to buy and would be depreciated straight-line over 4 years to a zero-salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 7.3 percent. The lessee does not expect to owe taxes for several years while the lessor's tax rate is 21 percent. What is the minimum lease payment that will be acceptable to both parties? (Do not round your intermediate calculations. Round only your final answer up to 2 decimal places, if necessary. Note: Your final answer must be in dollars without the $ sign at the beginning)Al-Tek is considering leasing some equipment for 5 years with equal annual lease payments. The equipment would cost $200,000 to buy and would be depreciated straightline to a zero salvage value. The actual salvage value is zero. The applicable pretax borrowing rate is 7 percent. The lessee's tax rate is 20 percent while the lessor's tax rate is 27 percent. What is the maximum lease payment All-Tek would be willing to pay for both parties?
- Witten Entertainment is considering buying a machine that costs $561,000. The machine will be depreciated over four years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments of $174,000. The company can issue bonds at an interest rate of 6 percent. The corporate tax rate is 21 percent. What is the NAL of the lease? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NALReynolds Construction (RC) needs a piece of equipment that costs $100,000. The equipment has an economic life of 2 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 10% with payments due at the end of the year. Alternatively, RC can lease the equipment for $55,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. What will RC report as an interest expense at Year 1? Round your answer to the nearest cent. Enter your…Reynolds Construction (RC) needs a piece of equipment that costs $150,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 7% with payments due at the end of the year. Alternatively, RC can lease the equipment for $55,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ What will RC report as an interest expense at Year 1? Round your answer to the nearest cent.…
- Reynolds Construction (RC) needs a piece of equipment that costs $150,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 7% with payments due at the end of the year. Alternatively, RC can lease the equipment for $55,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) What will RC report as an amortization expense at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What will RC report as the lease liability at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ What will RC report as the right-of-use asset at Year 1? Do…Super Sonics Entertainment is considering buying a machine that costs $445,000. The machine will be depreciated over five years by the straight-line method and will be worthless at that time. The company can lease the machine with year-end payments of $121,000. The company can issue bonds at a 10 percent interest rate. If the corporate tax rate is 35 percent. Assume that lease payments occur at the end of the year Calculate the NALA company is considering leasing a new equipment. The lease lasts for 5 years. The lease calls for 5 payments of $58,000 per year with the first payment occurring immediately. The equipment would cost $250,000 to buy and would be straight-line depreciated to a zero salvage value over 5 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 6%. The corporate tax rate is 21 percent. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0? -$2,645.01 -$2,820.71 -$2,996.41 -$3,172.11 -$3,347.81
- Firm A is considering leasing equipment. The equipment will provide $2.8 million in annual pre-tax cost savings. The cost of leasing is $8.78 million and the equipment will be depreciated straight-line to zero over five years. Assume a tax rate of 21% and a borrowing rate of 7%. Firm B has offered to lease this equipment for payments of $1.95 million per year. Assume that payments for the lease are made at the start of the year. i) What is the maximum lease payment that would be acceptable to Firm A? ii) Suppose now Firm B requires Firm A to pay a $600,000 security deposit at the inception of the lease, and this amount is refunded at the end of the lease. If the lease payment is still $1.95 million. Is it advantageous for Firm A to lease the equipment now?Super Sonics Entertainment is considering borrowing money at 11 percent and purchasing a machine that costs $350,000. The machine will be depreciated over five years by the straight-line method and will be worthless in five years. Super Sonics can lease the machine with the year-end payments of $94,200. The corporate tax rate is 35 percent. Should Super Sonics buy or lease?Consider a firm A that wishes to acquire an equipment. The equipment is expected to reduce costs by $4200 per year. The equipment costs $25000 and has a useful life of 5 years. If the firm buys the equipment, they will depreciate it straight-line to zero over 5 years and dispose of it for nothing. They can lease it for 5 years with an annual lease payment of $5000. If the after-tax interest rate on secured debt issued by company A is 2% and tax rate is 35%, what is the Net Advantage to Leasing (NAL)?(keep two decimal places)