Reference no: EM131025631
Big Sky Hospital plans to obtain a new MRI that costs $2.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume that the following facts apply to the decision:
The MRI falls into the three-year class for tax depreciation, so the MACRS allowances are 0.33, 0.45, 0.15, and 0.07 in Years 1 through 4, respectively.
Estimated maintenance expenses are $175,000 payable at the beginning of each year whether the MRI is leased or purchased.
Big Sky's marginal tax rate is 35 percent.
The bank loan would have an interest rate of 15 percent.
If leased, the lease (rental) payments would be $750,000 payable at the end of each of the next four years.
The estimated residual (and salvage) value is $500,000.
a. What are the NAL and IRR of the lease? Interpret each value.
b. Should Big Sky Hospital lease or buy?
c. Assume now that the salvage value estimate is $300,000, but all other facts remain the same. What is the new NAL? The new IRR?
d. Did the new salvage value estimate change the decision to lease or buy?
|
Which of the following points is a solution to this equation
: Which of the following points is a solution to this equation: y = -3x + 8
|
|
River cruises is all-equity-financed-current data number
: River Cruises is all-equity-financed. Current Data Number of shares 100,000 Price per share $ 10 Market value of shares $ 1,000,000 State of the Economy Slump Normal Boom Profits before interest $ 81,250 137,500 199,000 Suppose it now issues $250,000..
|
|
What probability that have to wait before seeing manager
: The applicants are scheduled at quarter-hour intervals, beginning at 8:00 A.M., and the applicants arrive exactly on time. When the applicant with an 8:15 A.M. appointment arrives at the manager's office, what is the probability that he will have ..
|
|
Internal revenue service for failure
: Dave is under a full investigation by the Internal Revenue Service for failure to file tax returns for a former company, Tucson to Texas Travelers (3T), a sole proprietorship, which ran a series of truck stops between Tucson, AZ and Houston, TX un..
|
|
What are the nal and irr of the lease
: Big Sky Hospital plans to obtain a new MRI that costs $2.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume that the following facts apply to the..
|
|
Find probability density function of distance
: Suppose that plants of a particular species are randomly dispersed over an area so that the number of plants in a given area follows a Poisson distribution with a mean density of λ plants per unit area. If a plant is randomly selected in this area..
|
|
Compute the cash payments to the partners
: Prepare the journal entry for Donald, Chief, & Berry LLP on August 1, 2011 to record the realization of Other Assets. Prepare the journal entry for Donald, Chief, & Berry LLP on August 1, 2011 to record payment of liabilities.
|
|
Corporation issue debt on formation
: Have Jimmy transfer some property along with the services rendered to the corporation. Instead of having the corporation issue debt on formation, Amber should withhold certain assets. For example, she could withhold the building and let the corpora..
|
|
What is the probability that a second call will not arrive
: Calls for dial-in connections to a computer center arrive at an average rate of four per minute. The calls follow a Poisson distribution. If a call arrives at the beginning of a one-minute interval, what is the probability that a second call will ..
|