Mattel, Inc. has decided to acquire a new equipment at a cost of $760,000. The equipment...

80.2K

Verified Solution

Question

Finance

Mattel, Inc. has decided to acquire a new equipment at a cost of$760,000. The equipment has an expected life of 6 years and will bedepreciated using 5-year MACRS with rates of .20, .32, .192, .1152,.1152, and .0576 (note that 5-year MACRS depreciation actuallytakes place over 6 years). There is no actual salvage value. MassFinancing has offered to lease the equipment to Mattel for $148,000a year for 6 years. Mattel has a cost of equity of 10.8 percent, apre-tax cost of debt of 6.5 percent, and a marginal tax rate of 25percent. Should Mattel lease or buy?
Mattel should lease because NPV = $21,542.69
Mattel should lease because NPV = $27,630.06
Mattel should buy because NPV = $23,514.35
Mattel should buy because NPV = $28,375.29
Mattel should lease because NPV = $18,589.72

Answer & Explanation Solved by verified expert

3.6 Ratings (287 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Mattel, Inc. has decided to acquire a new equipment at a cost of$760,000. The equipment has an expected life of 6 years and will bedepreciated using 5-year MACRS with rates of .20, .32, .192, .1152,.1152, and .0576 (note that 5-year MACRS depreciation actuallytakes place over 6 years). There is no actual salvage value. MassFinancing has offered to lease the equipment to Mattel for $148,000a year for 6 years. Mattel has a cost of equity of 10.8 percent, apre-tax cost of debt of 6.5 percent, and a marginal tax rate of 25percent. Should Mattel lease or buy?Mattel should lease because NPV = $21,542.69Mattel should lease because NPV = $27,630.06Mattel should buy because NPV = $23,514.35Mattel should buy because NPV = $28,375.29Mattel should lease because NPV = $18,589.72

		Mattel should lease because NPV = $21,542.69
		Mattel should lease because NPV = $27,630.06
		Mattel should buy because NPV = $23,514.35
		Mattel should buy because NPV = $28,375.29
		Mattel should lease because NPV = $18,589.72