--%>
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 breakthroughs on

    Explain breakthroughs on low-discrepancy sequences.

    		•
  • Q : Problem on common stock The AB Corp

    The AB Corp stock has a β of 1.15 and it will pay a dividend of $2.50 next year. The expected rate of return of the market is 17% and the current riskless rate is 9%. The expected rate of progress of AB is 4%. Find the value of its common stock.

    		•
  • Q : Explain market efficiency hypothesis

    According to what I read inside a book, market efficiency hypothesis means that the expected average value of variations is zero in the shares price. Thus, the best estimate of the future price of a share is its price now, as this incorporates all the available inform

    		•
  • Q : FIN3000 Corporate Finance Task

    Task Description Length: 1000-2000 words (up to 500 words above 2000 permitted) Description: • Complete this assignment in groups of 4-5 students. • Maintain a portfolio of financial issues taken from 8 news sources. • Analyse the articles with reference to theory covered in class and highlig

    		•
  • Q : Benefits of Cash to cash analysis

    Benefits of Cash to cash analysis: The benefits of Cash to cash analysis are as following: 1. Helps in better cash management situation thus, increasing liquidity. 2. The cash a

    		•
  • Q : How you can predict future evolution of

    Could we suppose that, as we cannot predict the future evolution of the value of shares, a good estimation would be to consider this constant during the next five years?

    		•
  • Q : Structure of Interest rates Which

    Which determines the shape of the term structure of Interest rates?

    		•
  • Q : How present value of tax shields be

    I have two valuations of the company that we set as an objective. Within one of them, the present value of tax shields (D Kd T) computed using Ku (required return to unlevered equity) and, in one, by using Kd (required return to debt). The second valuation is too high

    		•
  • Q : Which model was great breakthrough for

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

    		•
  • Q : International financial what can we

    what can we expanded opportinity set of international finance?

    		•