Carmichael Cleaners needs a new steam finishing machine that costs $100,000
Carmichael Cleaners needs a new steam finishing machine that costs $100,000. The company is evaluating whether it should lease or purchase the machine. The equipment falls into the MACRS 3-year class, and it would be used for 3 years and then sold, because the firm plans to move to a new facility at that time. The estimated value of the equipment after 3 years is $30,000. A maintenance contract on the equipment would cost $3,000 per year, payable at the beginning of each year. Alternatively, the firm could lease the equipment for 3 years for a lease payment of $29,000 per year, payable at the beginning of each year. The lease would include maintenance. The firm is in the 20% tax bracket, and it could obtain a 3-year simple interest loan, interest payable at the end of the year, to purchase the equipment at a before-tax cost of 10%.
(Note: MACRS rates for Years 1 to 4 are 0.3333, 0.4445, 0.1481, and 0.0741.)
Question: What is the principal repayment in Year 2?
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a. |
$33,233
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b. |
$0
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c. |
$6,979
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d. |
$10,000
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Question: What is the after-tax interest payment in Year 3?
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a. |
$8,000
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b. |
$2,924
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c. |
$3,656
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d. |
$6,000
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Question: How much is the after-tax salvage value at the end of Year 3 if Carmichael Cleaners buys the machine?
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a. |
$20,964
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b. |
$24,000
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c. |
$30,000
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d. |
$25,482
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Question: Should Carmichael Cleaners buy or lease the machine?
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a. |
Buy, the net advantage to leasing is $5,734
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b. |
Lease, the net advantage to leasing is $5,734
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c. |
Buy, the net advantage to leasing is $4,822
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d. |
Lease, the net advantage to leasing is $4,822
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Answers
Status NEW
Posted 26 May 2017 01:05 PM
My Price 7.00
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Attachments
file 1495804226-Answer.docx preview (394 words )
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