30 Assume that a company is choosing between two alternativeslease a piece of equipment for five years or buy a piece of equipment and sell it in five years. The costs associated with the two alternatives are summarized as follows: Lease Buy $ 60,000 $ 6,000 01:11:11 Purchase cost of equipment Annual operating costs Immediate deposit Annual lease payments Salvage value (5 years from now) $25,000 $18,000 eBook $ 8,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. If the company chooses the lease option, it will have to pay an immediate deposit of $25,000 to cover any future damages to the equipment. The deposit is refundable at the end of the lease term. The annual lease payments are made at the end of each year. Based on a net present value analysis with a discount rate of 14%, what is the financial advantage (disadvantage) of buying the equipment rather than leasing it? Multiple Choice 29 Assume that a company purchased a new machine for $20,000 that has a salvage value of $2,000 at the end of its useful life of five years. The machine is expected to save the company $6,000 a year in cash operating costs for five years. The machine's internal rate of return is closest to: 2 01:11:01 Multiple Choice eBook O 15%. 19%. O 17%. Assume that a company is planning to invest $150,000 in a project that will last three years. The project will produce the following net cash inflows: Year 1 Year 2 $65,000 $75,000 $ ? Year 3 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. Assuming the project's internal rate of return is exactly 12%, the expected net cash inflow for year 3 is closest to: Multiple Choice 25 Assume that a company is considering purchasing a machine for $45,750 that will have a five-year useful life and no salvage value. The machine will lower operating costs by $17,000 per year. The company's required rate of return is 18%. The profitability index for this investment is closest to: Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided. 8 01:10:38 Skipped Multiple Choice eBook 1.22. 1.12. Assume that a company has provided the following information regarding a capital investment opportunity: 22 01:10:28 Initial investment in equipment Initial investment in working capital Estimated annual sales Estimated annual cash operating expenses Repairs and maintenance in 3 years $150,000 $ 30,000 $160,000 $ 83,000 $ 20,000 Skipped eBook The equipment has a four-year useful life and no salvage value. The working capital will be released at the end of the project. The company's tax rate is 30%. The income tax expense for Year 4 of this investment is closest to: Multiple Choice