Ask Question, Ask an Expert


Ask Basic Finance Expert

problem: Biomedical Labs, is considering whether to lease or buy a part of research equipment costing $150,000. The firm is in the 40 percent tax bracket & its after tax cost of debt is eight percent. The terms of each alternative are as follows:

Lease: 3year term with annual end of year payments of dollar 59,500. The lesser will pay maintenance costs; Biomedical Labs will give for insurance & other costs. It plans to exercise its dollar 25,000 buy option at the end of the lease term.

Purchase: Financed with a three-year, 13 percent term loan with equal end-of-year payments of $63,530. Interest payments are shown below. The test equipment will be depreciated under ACRS using a three-year recovery period. The firm will pay dollar 3,500 per year for a maintenance contract & will also cover insurance & other costs.









[A] Compute the after tax cash flows associated with the lease alternative & the after tax cash flows associated with the purchase alternative.

[B] Compute the present value of the cash flows for both the lease & the buying alternatives.

[C] Determine which alternative should Biomedical Labs choose? describe.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M918116

Have any Question? 

Related Questions in Basic Finance

During 2015 rainbow umbrella corp had sales of 920000 cost

During 2015, Rainbow Umbrella Corp. had sales of $920,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $610,000, $125,000, and $155,000, respectively. In addition, the company ...

1 distinguish between construct and criterion-related

1. Distinguish between construct and criterion-related validity. 2. Distinguish between convergent and discriminant validity. Do these terms refer to types of construct validity or criterion-related validity?

1 what is the traditional cash equivalency approach used to

1. What is the traditional cash equivalency approach used to determine how below-market-rate loans affect value? 2. How can the effect of below-market-rate loans on value be determined using investor criteria? 3. ARGUS. ...

Wilmas vegetable market had the following transactions

Wilma's Vegetable Market had the following transactions during 2012: 1. Issued $25,000 of par value common stock for cash. 2. Recorded and paid wages expense of $10,000. 3. Acquired land by issuing common stock of par va ...

Primary task responsenbspif a company grows too fast it can

Primary Task Response:  If a company grows too fast, it can find itself without access to the resources it needs to meet its obligations. If it grows too slowly, it may find itself missing strategic as well as tactical o ...

1 in valuation of stock equity fundamental analysis makes

1. In valuation of stock equity, fundamental analysis makes extensive use of multiperiod discounted cash flow. Comment 2. The use of multiples and conventional financial reports is not well accepted by the traditional fi ...

Explain the following paradox a put option is a highly

Explain the following paradox. A put option is a highly volatile security. If the underlying stock has a positive beta, then a put option on that stock will have a negative beta (because the put and the stock move in opp ...

1 is the use of single-case studies a new approach to

1. Is the use of single-case studies a new approach to research in psychology? Explain. 2. Why do single-case researchers believe that the data from individual participants should not be combined, as when we compute a gr ...

Cost of debt the zephyr corporation is contemplating a new

(Cost of debt) The Zephyr Corporation is contemplating a new investment to be financed 33 percent from debt. The firm could sell new $1,000 par value bonds at a net price of $930. The coupon interest rate is 14 percent, ...

Assignment learning outcomes covered1 to enable students to

Assignment Learning Outcomes Covered 1. To enable students to explore and develop an understanding of the theoretical techniques, concepts and methods employed in finance. 2. To develop the ability to apply the theoretic ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro