Kiddy Toy Corporation needs to acquire the use of a machine to be used in its ma
ID: 2704444 • Letter: K
Question
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 12 years and then sold for $11,000 at the end of its useful life. Lollie has presented Kiddy with the following options (FV of $1, PV of $1,FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):
Buy machine. The machine could be purchased for $161,000 in cash. All maintenance and insurance costs, which approximate $6,000 per year, would be paid by Kiddy.
Lease machine. The machine could be leased for a 12-year period for an annual lease payment of $26,000 with the first payment due immediately. All maintenance and insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 12-year period.
Assuming that a 11% interest rate properly reflects the time value of money in this situation and that all maintenance and insurance costs are paid at the end of each year, find the present value for the following options. Ignore income tax considerations. (Negative amounts should be indicated by a minus sign.)
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 12 years and then sold for $11,000 at the end of its useful life. Lollie has presented Kiddy with the following options (FV of $1, PV of $1,FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):
Kiddy Toy Corporation needs to acquire the use of a machine to be used in its manufacturing process. The machine needed is manufactured by Lollie Corp. The machine can be used for 12 years and then sold for $11,000 at the end of its useful life. Lollie has presented Kiddy with the following options Buy machine. The machine could be purchased for $161,000 in cash. All maintenance and insurance costs, which approximate $6,000 per year, would be paid by Kiddy. Lease machine. The machine could be leased for a 12-year period for an annual lease payment of $26,000 with the first payment due immediately. All maintenance and insurance costs will be paid for by the Lollie Corp. and the machine will revert back to Lollie at the end of the 12-year period. Assuming that a 11% interest rate properly reflects the time value of money in this situation and that all maintenance and insurance costs are paid at the end of each year, find the present value for the following options. Ignore income tax considerations. (Negative amounts should be indicated by a minus sign.)Explanation / Answer
Cost of capital: buy
Purchase cost: 160,000 X.3219732366= 51515.71785
maintenance: 5,000
total cost 5,000 X 5.650223028 =28251.11514
salvage value: 10,000X.3219732366=3219.732366
79766.83299 minus 3219.732366= 76,547.10063
Net cash outflow= 76547.10063
Cost of capital:lease
lease payment: 25000 X 5.650223028= 141,255.5757
Decision: buy..
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.