fall exam

Cooper Tire and Rubber Company (Cooper) and its research department are headquartered in Findlay, Ohio, and are approximately a 10 minutes drive from the University of Findlay (UF) campus. Cooperand UFare in negotiations regarding the purchase and use of ascanning electron microscope.

You have been askedby Cooper to answer the question,given the following facts,ofwhetherCoopershouldbuy a scanning electron microscope,or donatemoney for UF to buy one?

1.At the present time Cooper employees use a scanning electron microscope at either Bowling Green State University or Ohio StateUniversity.Ohio State University charges "useof the instrument is $35.00 per hour and technical assistance is an additional $35.00 per hour". Bowling Green State University charges $60.00 per hour to use the instrument.Round trip travel to Bowling Green is 1 hours and the round trip to Ohio State is 3hours.

2.Presently, the average useful life of a scanning electron microscope is 7.6 years.

3.Presently, theresidual value of a scanning electron microscope after 7.6 years is $27,950.00.

4.If Cooper purchases a scanning electron microscope it will cost$500,000.

5.If Cooper buys a scanning electron microscope they will pay $100,000 cash and paythe remaining $400,000over 5 years at 6% interest.

6.Cooper will depreciate the cost of thescanning electron microscopeover 7.6 years using straight line depreciation.

7.If UFpurchasesa scanning electron microscope it will cost$400,000 (microscope companies give universities a deep discount).

8.If UF buys a scanning electron microscope they will pay $100,000 cash and pay the remaining $300,000 over 5 years at 6% interest.However UF does not know if its cash flow will allow it to agree to a 5 year payment plan.

9.If Cooper donates the $400,000 to UF they must come up with all $400,000 at one time.

10.If Cooper donates the $400,000 to UF for a scanning electron microscope, UF will allow Cooper to use it when they need it for 7 years, so long as itdoes not interfere with classes. The cost to Cooper willonlybe the cost ofconsumablesused byCooper when using the scanning electron microscope.

11.The effectiveincometax rate for Cooper is 32.7 percent. This means that a donation of $400,000.00 to UF will save Cooper $130,800 in federalincometaxeswhen they file their income tax return the following April 15th. So the net cost to Cooper is actually $269,200.So, in essence, Cooper donates the $400,000 in one year and the following April it saves $130,800.

12.UF will pay for maintenance and repairsvia a repair and maintenance agreement with the company that sells the scanning electron microscope.A repair and maintenance agreement that covers everything, including travel expense of the technician,will cost $40,000 per year regardless of whether Cooper or UF have the maintenance agreement with the microscope company.

13.Presently, the hours of usageofthe scanning electron microscope will be evenly split between Cooper and UF, but neither Cooper nor UF is sure how many hours of usage they will need over the next 7 years.

14.If Cooper donates the cost the scanning electron microscope to UF they will be able to advertise the fact that they are good neighbors by supporting STEM education at UF.