Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Trasky Company is trying to decide whether it should purchase or lease a new automated machine to be used in the production of a new product. If purchased, the new machine would cost $100,000 and would be used for ten years. The salvage value at the end of ten years is estimated at $20,000. The machine would be depreciated using straight line depreciation over a seven year period. The annual maintenance and operating costs would be $20,000. Annual revenues are estimated at $55,000.

If the machine is leased, the company would need to pay annual lease payments of $20,700. The first lease payment and a deposit of $5,000 are due immediately. The last lease payment is paid at the beginning of Year 10. The deposit is refundable at the end of the tenth year. In additional, under a normal contract, the company must pay for all maintenance and operating costs, although the leasing company does offer a service contract that will provide annual maintenance (on leased machines only). The contract must be paid up front and costs $30,000. Trasky estimates that the contract will reduce its annual maintenance and operating costs by $10,000. Trasky's cost of capital is 14%. The tax rate is 40%. The service contract's costs would e expensed over the 10 year period. Assume this is an operating lease.

a. find out the NPV for the purchase, lease without the service contract, and the lease with the service contract.
b. Which is the best alternative?

 

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M945448

Have any Question? 


Related Questions in Accounting Basics

Gasbvisit the website of the governmental accounting

G.A.S.B Visit the website of the Governmental Accounting Standards Board (G.A.S.B.) at http://gasb.org. Review the website to learn about the organization, its act ivies, and its goals. Review one or more of the "Plain-L ...

Accounting assignmentgrant film products wishes to expand

Accounting Assignment Grant Film Products wishes to expand and has borrowed $100,000. As a condition for making this loan, the bank requires that the business maintain a current ratio of at least 1.50. Business has been ...

Learning outcomesupon successful completion of this subject

LEARNING OUTCOMES Upon successful completion of this subject, you should be able to : 1 Identify and apply relevant accounting and information systems skills to the development, operation, maintenance and control of acco ...

Question 1a firms legal capital is defined as the par value

Question 1 A firm's legal capital is defined as the par value of its common stock. The following table represents a scaled version of the equity account of FIRM XYZ: Common stock at par R 136586 Paid-in capital in excess ...

Part a -exercise 1 - california graphics is a us

Part A - Exercise 1 - California Graphics is a U.S. corporation with $200 million of U.S.-source income and $10 million of foreign-source income. In addition, California Graphics has three-quarters ownership of a Canadia ...

Accountinguse the internet to research an annual report of

Accounting Use the Internet to research an annual report of a retail company. • Then, imagine you are an investor or creditor; suggest the ratios that you believe would provide an investor or creditor with the most impor ...

Accounting and regulatory environmenti need someone to

Accounting and Regulatory Environment. I need someone to write a paper for me on accounting and the regulatory environment. The instructions are below on what it is to include. In the wake of the accounting and finance s ...

Course project portfolio of international accounting

Course Project: Portfolio of International Accounting Findings Throughout your course work, you explored topics such as cost and revaluation models of accounting, revenue recognition, assets and liabilities, translation ...

Managerial accounting and financial accountingcompare and

Managerial Accounting and Financial Accounting Compare and Contrast Managerial Accounting and Financial Accounting. Be sure to discuss how managerial accounting is useful for providing information for at least one of the ...

Assignmentbackgroundyou are an audit senior for burns amp

Assignment Background You are an audit senior for Burns & Allen, LLP. One of the audit partners received a call from Brenda Parker, CFO of a publicly traded client, Toys For U ("Toys"). Toys is a retailer with 25 locatio ...

  • 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