What is the cost of purchasing the truck with debt financing

Assignment Help Financial Management

Reference no: EM131836472

Your employer, Barnaby Well Company, is considering the acquisition of a new drill truck and your boss has asked you to evaluate the decision that she has made to buy the truck. The truck has a purchase price of $60,000 and a useful life of 4 years and a zero salvage value. Barnaby can borrow to buy the truck for $60,000 or lease the truck for $15,000 for 4 years, paid at the beginning of each year.

If debt is used to buy the truck, Barnaby can borrow at 8% annual interest, with payments at the end of each year. The marginal tax rate for the firm is 40%. The asset is classified as a 3-year cost recovery asset for depreciation purposes. According to the current tax laws, Barnaby is allowed to use MACRS depreciation with 30% rate for year one, 45% for year two, 20% for year three and 5% for year four. There will be no salvage value at the end of the fourth year.

Question:

What is the cost of purchasing the truck with debt financing today?

Reference no: EM131836472

Questions Cloud

Describe the five main office procedures : Describe the five main office procedures that are performed by billing and coding specialists during the workday

What are the best-case and worst-case NPVs : McGilla Golf has decided to sell a new line of golf clubs. What are the best-case and worst-case NPVs?

Describe the major organs within the cardiovascular system : Describe the major organs within the cardiovascular system and how they work together to perform the major functions of the system and at least 2 illness

Determining the meaning of medical terms : Discuss word root, prefix, suffix and combining form in relation to determining the meaning of medical terms and explain how the phonetically spelled

What is the cost of purchasing the truck with debt financing : What is the cost of purchasing the truck with debt financing today?

Compare and contrast reimbursement methods : Develop a paper about reimbursement and the relationship with the HIM department. Please be sure to incorporate the following points within your response.

Silent mutations compared to frameshift mutations : Lets say you have an mRNA sequence. Then you have several other mRNA sequences that are very similar to the original mRNA

Knowledge of amino acids : Look at the gene sequence below and try to answer the following questions based on your knowledge of amino acids

What is the total cost of leasing the truck today : our employer, Barnaby Well Company, is considering the acquisition of a new drill truck. What is the total cost of leasing the truck today?

User Account

All Pages