Question
Nasa Inc desires to enlarge its services. To do so, the firm must manage a machine costing $2,50,000. The machine can be leased or purchased.
Nasa Inc desires to enlarge its services. To do so, the firm must manage a machine costing $2,50,000. The machine can be leased or purchased. The firm is in 40% tax bracket and the after-tax cost of debt (opportunity cost) is 9%. **Purchase contract: The machine costing $ 2,50,000, can be financed completely with a 12.5% loan for 4 years. The firm will pay $1,200 per year for service contract that covers all maintenance costs. Depreciation cost of machine for next five years are; $4126, $8520, $11726, $10,018 and $12,015 respectively.
**In workings, calculate the interest amount for each year by preparing a table including, the amount of beginning balance, Installment and Principal paid, and Ending balance for each year ** Show the table of after-tax cash outflow of the purchase contract for each year. * Use round-up value, ignore the decimal point
Calculate the annual payment (Installment) for purchasing the machine through loan finance. {Note: For factoring, count minimum of 6 digits decimal point, Example: 12.124563}
3 points
Your answer
calculate the after-tax cash outflow of the purchase contract at the end of year "ONE"
1 point
Your answer
calculate the after-tax cash outflow of the purchase contract at the end of year "FOUR"
3 points
Your answer
calculate the present value of the purchase contract from after-tax cash outflows stream
3 points
Your answer
Assume the present value of the lease contract is $290,000. So Which alternative (Lease and purchase) would you recommend?
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