Answered step by step
Verified Expert Solution
Question
1 Approved Answer
8-38 The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw
8-38 The New England Soap Company is considering adding some processing equipment to the plant to aid in the removal of impurities from some raw materials. By adding the processing equipment, the firm can purchase lower-grade raw material at reduced cost and upgrade it for use in its products. Four different pieces of processing equipment with 15-year lives are being considered: B D Initial investment $8,500 $18,500 26,500 $30,000 Annual saving in 3,500 6,000 7,400 9,000 materials costs Annual operating 2,100 3,000 3,200 4,100 cost The company can obtain a 13% annual return on its investment in other projects and is willing to invest money on the processing equipment only as long as it can obtain 14% annual return on each increment of money invested. Which one, if any, of the alterna- tives should be selected? Use a challenger-defender rate of return analysis. h vs. Loan vs. Lease Frequently we read in the newspaper that one should lease a car rather than buying it. For a typical 24- month lease on a car costing $9400, the monthly lease charge is about $267. At the end of the 24 months, the car is returned to the lease company (which owns the car). As an alternative, the same car could be bought with no down payment and 24 equal monthly payments, with interest at a 12% nominal annual percentage rate. At the end of 24 months the car is fully paid for. The car would then be worth about half its original cost. (a) Over what range of nominal before-tax interest rates is leasing the preferred alternative? (b) What are some of the reasons that would make leasing more desirable than is indicated in (a? &
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started