Business, 18.06.2021 03:50, AM28

Aaron Co. needs a machine for a 5-year project. It can either (1) buy a machine without borrowing for $500,000 or (2) enter into a 5-year operating lease for an annual payment of $105,000. The machine has an estimated useful life of 5 years, after which it can be sold for $15,000. The average tax rate is 30%, and the discount rate for the project is 6%. Relevant discount factors are below: Present value of 1 at 6% in 1 year: 0.943 Present value of 1 at 6% in 2 years: 0.890 Present value of 1 at 6% in 3 years: 0.840 Present value of 1 at 6% in 4 years: 0.792 Present value of 1 at 6% in 5 years: 0.747 What is the present value of the relevant net cash outflows of the operating lease

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answered: bhopainting

The present value of the relevant net cash outflows of the operating lease is $434,416.50.

Explanation:

Salvage value after tax = Salvage value * (100% - Tax rate) = $15,000 * (100% - 30%) = $10,500

Present value of salvage value after tax = Salvage value after tax * Present value of 1 at 6% in 5 years = $10,500 * 0.747 = $7,843.50

Present value of a Year annual operating lease = Annual operating * Present value of 1 at 6% in the years ………… (1)

Using equation (1), we have:

Present value of Year 1 annual operating lease = $105,000 * 0.943 = $99,015

Present value of Year 2 annual operating lease = $105,000 * 0.890 = $93,450

Present value of Year 3 annual operating lease = $105,000 * 0.840 = $88,200

Present value of Year 4 annual operating lease = $105,000 * 0.792 = $83,160

Present value of Year 5 annual operating lease = $105,000 * 0.747 = $78,435

Therefore, we have:

Present value of net cash outflows of the operating lease = Present value of Year 1 annual operating lease + Present value of Year 2 annual operating lease + Present value of Year 3 annual operating lease + Present value of Year 4 annual operating lease + Present value of Year 5 annual operating lease - Present value of salvage value after tax = $99,015 + $93,450 + $88,200 + $83,160 + $78,435 - $7,843.50 = $434,416.50

Therefore, the present value of the relevant net cash outflows of the operating lease is $434,416.50.

answered: Guest

Your not allowed to ask their age, only if they're above 18, you cannot ask if they have ever been arrested, convicted, or spent time in jail prior to employment (you can however ask a question like "perhaps this job required security clearance, would you be able to attain it? "). you also cannot ask the severity or nature of any disabilities they have but similar to criminal record can ask if they are able to preform the job safely. in addition to this, you can ask *after* an interview if they're married for insurance reasons. so it appears to be c and d, but if you can only chose one it would probably be b.

answered: Guest

You need to give the options.

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Aaron Co. needs a machine for a 5-year project. It can either (1) buy a machine without borrowing fo...