Kiddy Toy Corporation needs to acquire the use of a machine tobe used in its manufacturing process. The machine needed ismanufactured by Lollie Corp. The machine can be used for 8 yearsand then sold for $23,000 at the end of its useful life. Lollie haspresented Kiddy with the following options: (FV of $1, PV of $1,FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Useappropriate factor(s) from the tables provided.)
1. Buy machine. The machine could be purchased for$173,000 in cash. All maintenance and insurance costs, whichapproximate $18,000 per year, would be paid by Kiddy.
2. Lease machine. The machine could be leased for a 8-yearperiod for an annual lease payment of $38,000 with the firstpayment due immediately. All maintenance and insurance costs willbe paid for by the Lollie Corp. and the machine will revert back toLollie at the end of the 8-year period.
Required: Assuming that a 9% interest rate properly reflects the timevalue of money in this situation and that all maintenance andinsurance costs are paid at the end of each year, find the presentvalue for the following options. Ignore income tax considerations.(Negative amounts should be indicated by a minussign.)
Present Value BuyOption LeaseOption
I Need the Buy Option Present Valueand the Lease Option Present Values.Thanks!
Kiddy Toy Corporation needs to acquire the use of a machine tobe used in its manufacturing process. The machine needed ismanufactured by Lollie Corp. The machine can be used for 8 yearsand then sold for $23,000 at the end of its useful life. Lollie haspresented Kiddy with the following options: (FV of $1, PV of $1,FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Useappropriate factor(s) from the tables provided.) |
| 1. | Buy machine. The machine could be purchased for$173,000 in cash. All maintenance and insurance costs, whichapproximate $18,000 per year, would be paid by Kiddy. |
| 2. | Lease machine. The machine could be leased for a 8-yearperiod for an annual lease payment of $38,000 with the firstpayment due immediately. All maintenance and insurance costs willbe paid for by the Lollie Corp. and the machine will revert back toLollie at the end of the 8-year period. |
| Required: |
Assuming that a 9% interest rate properly reflects the timevalue of money in this situation and that all maintenance andinsurance costs are paid at the end of each year, find the presentvalue for the following options. Ignore income tax considerations.(Negative amounts should be indicated by a minussign.) |
| Present Value | |
| BuyOption | |
| LeaseOption |
I Need the Buy Option Present Valueand the Lease Option Present Values.Thanks!
Related questions
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2016. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):
Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
Land A and Building A were acquired from a predecessor corporation. Thompson paid $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
Land B was acquired on October 2, 2016, in exchange for 3,000 newly issued shares of Thompsonâs common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $25 per share. During October 2016, Thompson paid $10,400 to demolish an existing building on this land so it could construct a new building.
Construction of Building B on the newly acquired land began on October 1, 2017. By September 30, 2018, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2019.
Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
Machine Aâs total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2018.
On October 1, 2017, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2018. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each answer box on the schedule. (Round your final answer to nearest whole dollar.)
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