Jenkins Company has decided to acquire office equipment ( copiers , printers, etc. ) that it will
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Jenkins Company has decided to acquire office equipment copiers printers, etc. that it will use at its headquarters building for the next five years. The equipment would cost $ to purchase. Alternately, Jenkins could lease the equipment for five years, at an annual cost of $ The lease includes equipment maintenance, which would otherwise be anticipated to cost $ per year.
The estimated salvage value of the equipment after five years is $ The fiveyear MACRS schedule applies for tax depreciation. Jenkins tax rate for both income and capital gains is You can assume that, should Jenkins purchase the equipment, it will borrow $ to do so The loan would call for Jenkins to pay $ per year in interest and to repay the principal after at the end of year five.
The appropriate discount rate for this problem is the after tax cost of borrowing You can also assume that Jenkins would earn this rate after tax on any cash balances. All cash flows except the initial purchase and borrowing are endofperiod. Finally, you can assume that Jenkins taxable income is high enough that the tax deductible expenses associated with this decision would indeed reduce the company's liability .
Suppose that Jensen wanted to set aside a sum of money now that would be sufficient to fund the aftertax costs of acquiring the assets through the borrow to purchase alternative. How much money would they need to set aside?
Related Book For
Managerial Accounting Creating Value in a Dynamic Business Environment
ISBN: 978-0078110917
9th edition
Authors: Ronald W. Hilton
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