Daily Enterprises is contemplating the acquisition of some new equipment. The purchase price is $35,000. The...

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Finance

Daily Enterprises is contemplating the acquisition of some newequipment. The purchase price is $35,000. The equipment has a4-year life. The company expects to sell the equipment at the endof year 4 for $7,000. The firm uses MACRS depreciation which allowsfor 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percentdepreciation over years 1 to 4, respectively. The equipment can beleased for $9,000 a year. The firm can borrow money at 9 percentand has a 33 percent tax rate. What is the incremental annual cashflow for year 4 if the company decides to lease the equipmentrather than purchase it?
A. $-14,452
B. $-6,100
C. $-6,894
D. $-11,120
E. $-11,576

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Solution Answer is E 11576 Working Notes As life of the machine and lease period same means it will a Finance lease Hence Incremental Cash flow for 4th year for finance See Answer

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Daily Enterprises is contemplating the acquisition of some newequipment. The purchase price is $35,000. The equipment has a4-year life. The company expects to sell the equipment at the endof year 4 for $7,000. The firm uses MACRS depreciation which allowsfor 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percentdepreciation over years 1 to 4, respectively. The equipment can beleased for $9,000 a year. The firm can borrow money at 9 percentand has a 33 percent tax rate. What is the incremental annual cashflow for year 4 if the company decides to lease the equipmentrather than purchase it?A. $-14,452B. $-6,100C. $-6,894D. $-11,120E. $-11,576