hybrid costing7

Hybrid costing7 - Lease analysis i Answer b Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools

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Lease analysis Answer: b Diff: M i . Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools that it needs for production during the next three years. A planned change in the firm’s production technology will make the tools obsolete after 3 years. The firm will depreciate the cost of the tools on a straight-line basis. The firm can borrow $4,800,000, the purchase price, at 10 percent to buy the tools or make three equal end-of-year lease payments of $2,100,000. The firm’s tax rate is 40 percent and the firm’s before-tax cost of debt is 10 percent. Annual maintenance costs associated with ownership are estimated at $240,000. What is the net advantage to leasing (NAL)? a. $ 0 b. $106,200 c. $362,800 d. $433,100 e. $647,900 Breakeven lease payment Answer: a Diff: M ii . Lawrence Co. is considering the purchase of some manufacturing equipment. The equipment costs $1,600,000. The equipment lasts for 4 years and falls into the MACRS 3-year class; therefore, the
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This note was uploaded on 08/04/2011 for the course COMM 101 taught by Professor Sy during the Spring '11 term at USC.

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Hybrid costing7 - Lease analysis i Answer b Redstone Corporation is considering a leasing arrangement to finance some special manufacturing tools

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