Solution-What effect would the use of accelerated

What effect would the use of accelerated depreciation

Reference no: EM131122042

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?

Reference no: EM131122042

Questions Cloud

Deriving auction from -relaxation : Deriving Auction from -Relaxation) Consider the assignment problem formulated as a minimum cost flow problem We say that source i is assigned to sink j if (i, j) has positive flow.

Describe the family dynamics and school pressures by julia : Describe the family dynamics and school pressures experienced by Julia. Under what circumstances might such family and school factors become problematic or set the stage for psychological problems

Prepare a statement of owner''s equity for the year : Jackrabbit Systems Co. offers its services to residents in the Santa Cruz area. Selected accounts from the ledger of Jackrabbit Systems Co. for the current fiscal year ended March 31, 2010, are as follows:

Suboptimality of a feasible flow satisfying : (Suboptimality of a Feasible Flow Satisfying -CS) Let x∗ be an optimal flow vector for the minimum cost flow problem and let x be a feasible flow vector satisfying -CS together with a price vector p.

What effect would the use of accelerated depreciation : 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 own..

The relaxation algorithm applied to a minimum cost flow : (Dealing with Infeasibility) Consider the -relaxation algorithm applied to a minimum cost flow problem with initial prices p0

Examine various theories of human development : Examine various theories of human development, describing relevant terminology, and addressing how the theory assists in the understanding of issues involved in the selected topic

Summarize the benefits and drawbacks of stress : Summarize the benefits and drawbacks of stress. Can we use stress to our advantage? Why or why not

What aftertax rate of return will the bank earn on the lease : what after-tax rate of return will the bank earn on the lease? In general, what effect would the use of MACRS depreciation by the bank have on the rate of return it earns from the lease?

User Account

All Pages

What effect would the use of accelerated depreciation

Reference no: EM131122042

Reference no: EM131122042

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

What is the effective cost of debt of home depot

Explain firms can liquefy their accounts receivable

What is the expected return of yerba stock after this

Graph the binomial distribution using a histogram

Where would you lend

If the current market price is 780 what will be the

You want to withdraw 3000 once year at the begining of each

Corporate valuation-dozier corporation

Calculate the incremental npv of the lease agreement

Determine the margin of error

Determine the expected rate of return on equity

Calculate the holding period return

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT