What is the npv associated with leasing the equipment

Assignment Help Finance Basics
Reference no: EM131891160

Suppose Proctor? & Gamble? (P&G) is considering purchasing $17 million in new manufacturing equipment. If it purchases the? equipment, it will depreciate it for tax purposes on a? straiht-line basis over five? years, after which the equipment will be worthless. It will also be responsible for maintenance expenses of $ 1.00 million per? year, paid in each of years 1 through 5. It can also lease the equipment under a true tax lease for ?$4.4 million per year for the five? years, in which case the lessor will provide necessary maintenance. Assume? P&G's tax rate is 30 %, its borrowing cost is 7.5 %, and that the tax deductibility benefit of the lease payments occurs at the same time as when the lease payment is made.?

a. What is the NPV associated with leasing the equipment versus borrowing and buying? it?

b. What is the? break-even lease rate-that ?is, what lease amount could? P&G pay each year and be indifferent between leasing and buying through? borrowing?

Reference no: EM131891160

Questions Cloud

Capital budgeting criteria-mutually exclusive projects : Capital Budgeting Criteria: Mutually Exclusive Projects - Project S costs $15,000, and its expected cash flows would be $4,500 per year for 5 years.
What are your objectives in the given situation : Suppose you are in the market for a new car to be used mainly for commuting to work, shopping, running errands, and visiting friends.
Future value of the amount : what would be the future value of the amount you will pay for the service contract?
By how much would the special order increase or decrease : By how much would this special order increase the company's net operating income for the month? Show your work and label your answers.
What is the npv associated with leasing the equipment : a. What is the NPV associated with leasing the equipment versus borrowing and buying? it?
What is the operating cash flow : If the tax rate is 35 percent, what is the operating cash flow, or OCF?
Disputes arising between buyer and Seaway Volkswagen : Suppose Mr. and Mrs. Robinson find in the original paperwork with Seaway Volkswagen that there is a contractual agreement with a provision that says.
What is the diluted earnings per share for 2015 : If each share of preferred stock is convertible into 2 shares of common stock, what is the diluted earnings per share for 2015?
What is the present value of an annuity : What is the present value of an annuity of $27 received at the beginning of each year for the next six years?

Reviews

Write a Review

Finance Basics Questions & Answers

  How does preferred stock differ from common stock

What account is used to record the premium when issuing common stock? What type of account is this?

  Organisation drawing on relevant hrm concepts

In your answer indicate whether these two aspects can exist at the same time within an organisation drawing on relevant HRM concepts

  Code section 351-mergers and acquisitions

Does Code Section 351 impact mergers? Is this something I should be concerned about in regards to Section 351 exchanges?

  Discuss the cash burn ratio

[Transaction effects on ratios, CFA C adapted] A company's current ratio is 2.0. The company uses some of its cash to retire notes payable that are due.

  Write about the following in regards to a fine foods

write about the following in regards to a fine foods grocery shop pursuing an international organizationeffects of

  Define the maintenance concept for the new system

Identify the critical technical performance measures (TPMs), based on the defined operational requirements and maintenance concept. Describe the process leading from the identification of TPMs to the identification of specific design characteristi..

  Describe the policy loan provision

Describe the policy loan provision that appears in a typical cash-value life insurance policy. a. Why is interest charged on a policy loan? b. List the advantages and disadvantages of a policy loan.

  From the time of issuance until the bond matures which of

from the time of issuance until the bond matures which of the following bonds is most likely to exhibit negative

  Differences would you expect to find between the turnover

Profit margins and turnover ratios vary from one industry to another. What differences would you expect to find between the turnover ratios, profit margins, and DuPont equations for a grocery chain and a steel company?

  Is the factory a good investment

A factory costs $400,000. You forecast that it will produce cash inflows of $120,000 in year 1, $180,000 in year 2, and $300,000 in year 3. The discount rate is 12%. Is the factory a good investment? Explain.

  Can the nominal interest rate available to an investor be

Can the nominal interest rate available to an investor be significantly negative? (Hint: Consider the interest rate earned from saving cash “under the mattress.”) Can the real interest rate be negative? Explain.

  Does it make sense to own stock if it does not outperform

how would you advise a friend if they won the 400000000 powerball lottery and had the choice of equal payments for 30

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd