--%>
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 : Which model was great breakthrough for

    Which one model was great breakthrough for side of finance theory?

    		•
  • Q : Is Capital Cash Flow identical with

    Is Capital Cash Flow identical with Free Cash Flow?

    		•
  • Q : Analysis on Stock Prices Using the last

    Using the last 3 years of closing stock prices on the first trading day of each month from January,  2010 through December 2012 for Apple (APPL) and the S&P 500 (market) for the same date range 1)    &n

    		•
  • Q : Expected return for a portfolio What is

    What is the expected return for a portfolio consisting of 200 shares of Nike, 200 shares of Home Depot, and 400 shares of Intel if their expected returns are 10%, 8% and 12% respectively, and their current prices are $25, $50, and $25 per share respec

    		•
  • Q : Who introduced put–call parity Who

    Who introduced put–call parity?

    		•
  • Q : What is the market risk premium What is

    What is the market risk premium within Spain at the present time – the number that I have to use in the valuations?

    		•
  • Q : Define Effective Utilization of Funds

    Effective Utilization of Funds: It is just the decision to maximize the return on investment of funds. When finance manager is not capable to raise the return by investing fund in profitable assets or other profitable projects, company’s busines

    		•
  • Q : Bond price problem ABC Corp is issuing

    ABC Corp is issuing a 10-year bond with a coupon rate of 7 %. The interest rate for similar bonds is at present 9 %. Supposing annual payments, what is the current value of the bond? (Round to the closest dollar.) (a) $872 (b) $1,066 (c) $990 (d) $945.

    Q : Explain investment of bank for

    When my company is not listed, therefore the investment banks apply an illiquidity premium. In fact, they say this is an illiquidity premium but then they call this a small cap premium. Only one of the banks, apparently based upon Tit

    		•
  • Q : Is this possible to make money in the

    Is this possible to make money in the stock market while the quotations are going down? And what is credit sale?

    		•