Answered step by step
Verified Expert Solution
Link Copied!

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!

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

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 PMT

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Routledge Handbook Of State Owned Enterprises

Authors: Luc Bernier, Massimo Florio, Philippe Bance

1st Edition

1138487694, 978-1138487697

More Books

Students also viewed these Finance questions

Question

What is the lookback period?

Answered: 1 week ago

Question

Is hedge accounting permitted for a delta-neutral hedging strategy?

Answered: 1 week ago