Reference no: EM131334978
Jenkins Corporation wants to acquire a $200,000 computer. Jenkins has a 40 percent marginal tax rate. If owned, the computer would be depreciated on a straight-line basis to a book salvage value of $0. The actual cash salvage value is expected to be $20,000 at the end of 10 years. If the computer is purchased, Jenkins could borrow the needed funds at an annual pretax interest rate of 10 percent.
If purchased, Jenkins will incur annual maintenance expenses of $1,000. These expenses would not be incurred if the computer is leased. The lease rate would be $28,000 per year, payable at the beginning of each year. Jenkins' weighted after-tax cost of capital is 12 percent.
a. Compute the net advantage to leasing.
b. In general, what effect would the use of accelerated depreciation, such as MACRS, have on the answer to part a?
c. What alternative, leasing or owning, should be chosen?
|
Cost and management accounting
: The board of directors of your company asked you to prepare certain projections, reports and present certain information so that they can take decision regarding whether to continue a particular venture or not. Discuss the tools you will be using to ..
|
|
Determine the number of hours at a drain current
: For how long can 50 mA be drawn from the battery of Fig. 2.19 before its terminal voltage drops below 1 V? Determine the number of hours at a drain current of 150 mA, and compare the ratio of drain current to the resulting ratio of hours of availa..
|
|
Decision-making opportunities the executive or management
: Interview one person within your organization who has knowledge about the decision-making opportunities the executive or management team formulates.
|
|
What after tax rate of return will the bank earn
: If the bank depreciates the machinery on a straight-line basis over 20 years to a $0 estimated salvage value and has a 40 percent marginal tax rate, what after-tax rate of return will the bank earn on the lease?
|
|
Compute the net advantage to leasing
: Compute the net advantage to leasing.- In general, what effect would the use of accelerated depreciation, such as MACRS, have on the answer to part a?
|
|
Participate in markets barriers
: 1) Monopolies and monopolistically competitive firms differ in that monopolies: a) participate in markets where barriers to entry are present
|
|
Donna consumes smoothies and pizzas
: Suppose that Donna consumes smoothies and pizzas. The price of smoothies is $5 and the price of pizzas is $10. The table below shows Donna's utility from the consumption of each good, and each row represents a possible consumption bundle. Currentl..
|
|
The equity investors rate of return on given investment
: If, as a potential equity investor, you require an 8 percent after-tax rate of return on investments of this type, should you make this investment?
|
|
How individual objectivity is address in the code of ethics
: Discuss how individual objectivity is addressed in the Code of Ethics and the Standards. Explain when such objectivity is deemed to be impaired.
|