--%>
Assignment Help - homework help

Problem on leasing

Johnathan Lewis is looking into the possibility of buying several coin-operated vending machines and put them in local hospitals. Each machine costs $2000, that he will depreciate on a straight-line basis over 8 years. The machine will dispense soft-drink cans at 75 cents each and XYZ Company will replenish them at 40 cents each. Each machine is expected to sell 1500 cans a month. The hospitals will give the space and electricity for the machines for $200 a month at the end of every month. The tax rate of Johnathan Lewis is 25% and after tax cost of capital 12%. Suppose that the income and bills take place at the end of each month, though the taxes are paid annually. Should Johnathan Lewis get into this venture?

E

Expert

Verified

Profit over Coke cans = 1500*(75-40) = 52,500/100 = $525

Annual Profit = 525*12 = $6300

Profit after tax = 6300*.75 = 4725

606_leasing problem.jpg

Thus John Lewis must get $12,841.9 for each machine.

   Related Questions in Corporate Finance

  • Q : Explain value of shares is Is this

    Is this correct that the value of the shares is, the “value of the results’ capitalization” that, as per to the Institute of Accounting and Auditing (ICAC) shows “the sum of the expected future results of the company throughout a certain period

    		•
  • Q : International financial what can we

    what can we expanded opportinity set of international finance?

    		•
  • Q : Calculate their after tax cost of debt

    Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of whichrequire semiannual interest payments. Bond A has a coupon rate of 4.0%; a price qu

    		•
  • Q : Define Working capital requirement

    Working capital requirement: Is a financial term known as WCR, which is used to judge the operational liquidity of the business and it is a part of operational capital. A firm in spite of having a good profitability and assets may not have a good liqu

    		•
  • Q : Explain the structure

    Our company (A) is going to buy the other company (B). We need to value the shares of B and, thus, we will use three options of the structure Debt/Shareholders’ Equity in order to obtain the WACC as: 1) Present structure of A

    		•
  • Q : Investors are irrational or naive

    Explain how companies with substandard financial history can draw the attention of investors. Are investors irrational or naive?

    		•
  • Q : Define the term Stock Market crash

    Stock Market Crash was responsible for the Great Depression. Middle class families lost all their savings as they had gambled the market on margin.Those banks which were under the loan ofbrokers’ started removing money out of the savings account

    		•
  • Q : What are Stock exchanges Stock

    Stock exchanges: A stock exchange provides services useful for trading, issue and redemption of shares and other securities for traders and brokers. They will also provide facility for payment of income and dividends for listed securities. Securities

    		•
  • Q : Explain few Spanish mutual funds

    Is this true that very little Spanish mutual funds outperform their benchmark? Isn’t this strange?

    		•
  • Q : Porters Primary activities Porter’s

    Porter’s Primary activities: 1. Inbound Logistics: • Suppliers’ details.• Storage details with respect to materials.• Details regarding pl

    		•