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Finance
Madali Lang company was given two proposals by JMr. Marcelo for financing an equipment. The proposals are as follows: A/Leasing the equipment: Madali lang can lease the equipment under a five year lease contract that required P55.000 end-of-the-year payments. Maintenance cost, will be paid by the lessor and insurance and other costs will be paid by the lessee. The lessee will exercise its option to acquire the asset for P34.000 at the end of the lease contract. B|Purchasing the equipment: The equipment costs P200,000 and has a useful life of five years. Straight line depreciation will be used, and the company is currently under 35% tax bracket. The purchase of the equipment will be financed through a five year loan with fifteen percent interest that requires end-of-the-year payments of P59.670. The firm will pay P12.000 per year for a contract that covers all other costs borne by the firm. Madali lang plans to keep the equipment and use it beyond its five year recovery period. Round off final answers to two/2) decimal places, use comma as separator Required: 1. For the leasing plan, how much is the after tax cash outfiow for year 3? 2. For the leasing plan, how much is the present value of the cash outflows using five percent cost of capital? 3. For the purchasing plan, how much is the annual interest expense for year 4? 4. For the purchasing plan, how much is the after-tax cash outflow for year 4? 5. For the purchasing plan, how much is the present value of the cash outflows using 9% cost of capital? 6. What proposal should MTC choose? A or B 7. How much is the incremental savings of the company from your answer in number 6? Madali Lang company was given two proposals by JMr. Marcelo for financing an equipment. The proposals are as follows: A/Leasing the equipment: Madali lang can lease the equipment under a five year lease contract that required P55.000 end-of-the-year payments. Maintenance cost, will be paid by the lessor and insurance and other costs will be paid by the lessee. The lessee will exercise its option to acquire the asset for P34.000 at the end of the lease contract. B|Purchasing the equipment: The equipment costs P200,000 and has a useful life of five years. Straight line depreciation will be used, and the company is currently under 35% tax bracket. The purchase of the equipment will be financed through a five year loan with fifteen percent interest that requires end-of-the-year payments of P59.670. The firm will pay P12.000 per year for a contract that covers all other costs borne by the firm. Madali lang plans to keep the equipment and use it beyond its five year recovery period. Round off final answers to two/2) decimal places, use comma as separator Required: 1. For the leasing plan, how much is the after tax cash outfiow for year 3? 2. For the leasing plan, how much is the present value of the cash outflows using five percent cost of capital? 3. For the purchasing plan, how much is the annual interest expense for year 4? 4. For the purchasing plan, how much is the after-tax cash outflow for year 4? 5. For the purchasing plan, how much is the present value of the cash outflows using 9% cost of capital? 6. What proposal should MTC choose? A or B 7. How much is the incremental savings of the company from your answer in number 6
