Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

give the correct answer for a thumbs up. Jeff & Bezos is a fresh groceries delivery company. The company has access to borrowing funds at

give the correct answer for a thumbs up.
image text in transcribed
Jeff \& Bezos is a fresh groceries delivery company. The company has access to borrowing funds at a pre-tax rate of 9% per year. Jeff \& Bezos pays income taxes using 24% tax rate. The company would like to start using high-speed low-altitude drones to deliver grocery purchases directly to residential customers' backyards. Doing so would bring the company pre-tax savings in the amount of $2.9 million each year. The required fleet of drones costs $8 million. If the company chooses to buy them, the drones would be losing their economic value following the straight-line depreciation method during a five year period. The fleet of drones, due to their heavy usage, would have no salvage value at the end. Instead of buying the fleet of the drones, Jeff \& Bezos is also contemplating leasing the drones for a lease term that matches the drones' economic life. It would lease them from a different company, Nets \& Flicks, that currently owns the required number of the drones. The estimated annual pre-tax cost of leasing would be $1,780,000. Nets \& Flicks requires that the lease payments are made by Jeff \& Bezos at the beginning of each year. One additional requirement is that Jeff \& Bezos pays a $820,000 security deposit when the lease agreement is being signed, and at the end of the lease term Nets \& Flicks promises to give the deposit back to Jeff \& Bezos. When the security deposit is also taken into account, Jeff \& Brzos' net advantage to leasing, or NAL, equals (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 dcimal places, e.g., 1,234,567.89.)

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

Essentials Of Real Estate Finance

Authors: David Sirota, Doris Barrell

14th Edition

1475428391, 9781475428391

More Books

Students also viewed these Finance questions

Question

What are the application procedures?

Answered: 1 week ago