--%>
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 : Determine weighting of shares done and

    When computing the WACC, is the weighting of the shares done and the debt with book values of debt and shareholder’s equity or along with market values?

    		•
  • Q : Does it make sense to apply identical

    The National Company responsible for the company where he work has newly published a document stating as that the levered beta of the sector of energy transportation is as 0.471870073 (it is 9 decimals). They acquired this number by considering the betas into the sect

    		•
  • Q : Why do a Split Why do a Split?

    Why do a Split?

    		•
  • 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 h

    		•
  • Q : Problem on HIBOR Below are the

    Below are the three-month HIBOR and three-year EFN futures (that is, Exchange Fund Note) prices for the September 2010 contracts.a) Find out the HIBOR in three-months for settling the future contract utilizing the quotation on August 16.

    Q : Minimum annual savings problem XYZ

    XYZ Company is interested in purchasing a new corporate jet for $6 million. This will depreciate the jet completely in 5 years and then sell it for $5 million. The jet will utilize $60,000 in fuel annually, and its maintenance will be $40,000 yearly. The tax rate of X

    		•
  • Q : Public Finance which type of tax,

    which type of tax, direct or indirect is applicable in underdeveloped countries? Why? Show your critical areas and weaknesses.

    		•
  • Q : Who explained the high-peak/fat-tails

    Who explained the high-peak/fat-tails?

    		•
  • Q : Is the price of futures the excellent

    Is the price of futures the excellent estimate of €/$ exchange rate?

    		•
  • Q : Tax credit for lease payments problem

    ABC Inc. is planning to lease a computer for $3000 per annum, payable in advance, for a period of 4 years. The lease will cover maintenance costs. ABC CFO feels that if he buys the same computer he should be able to sell it at 15% of the purchase price after 4 years.

    		•