Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Can anyone help solve this problem? Please provide step by step solutions along with excel formulas. Thanks! The loom has an invoice price of $250,000,
Can anyone help solve this problem? Please provide step by step solutions along with excel formulas. Thanks!
The loom has an invoice price of $250,000, including delivery and installation charges. The funds needed could be borrowed from the bank through a 4-year amortized loan at a 10% interest rate, with payments to be made at the end of each year. In the event that the loom is purchased, the manufacturer will contract to maintain and service it for a fee of $20,000 per year paid at the end of each year. The loom falls in the MACRS 5-year class, and Western's marginal federal-plus-state tax rate is 40%. Gardial Automation Inc., maker of the loom, has offered to lease the loom to Westen for $70,000 upon delivery and installation (at t=0) plus 4 additional annual lease payments of $70,000 to be made at the ends of Years 1 through 4, (Note that there are 5 lease payments in total.) The lease agreement includes maintenance and servicing. Actually, the loom has an expected life of eight years, at which time its expected salvage value is zero; however, after 4 years, its market value is expected to equal its book value of $42,500. Tanner-Woods plans to build and entirely new plant in 4 years, so it has no interest in either leasing or owning the proposed loom for more than that period. a. Should the loom be leased or purchased? First, we want to lay out all of the input data in the problem. INPUT DATA Invoice Price $250,000 2 Length of loan 3 Loan Interest rate 10% Maintenance fee $20,000 Tax Rate 40% 6 Lease fee $70,000 7 Equipment expected life $0 8 Expected salvage value 9 Market value after 4 years $42,500 Book value after 4 years $42,500 2 First, we ca n determine the annual loan payment that must be made on the new equipment. We will do so using the 3 function wizard for PMTStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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