Answer:
$10,974.45
Explanation:
coupon rate 4.5%, semiannual = 2.25%
20 years until maturity = 40 periods
market rate 3.8%, semiannual = 1.9%
par value $10,000
market price of the bonds = PV of par value + PV of coupon payments
PV of par value = $10,000 / (1 + 1.9%)⁴⁰ = $4,710.13
PV of coupon payments = $225 x 27.84144 (PV annuity factor, 1.9%, 40 periods) = $6,264.32
market value = $4,710.13 + $6,264.32 = $10,974.45
Answer:
The dollar price of the bond is $10,974.45.
Explanation:
The dollar price of the bond, PV, can be determined as follows :
N = 20 × 2 = 40
PMT = ($10,000 × 4.5%) ÷ 2 = $225
P/YR = 2
YTM = 3.80 %
FV = $10,000
PV = ?
Using a Financial Calculator, the dollar price of the bond, PV is $10,974.45.
Terrance needs to comminicate with managers in several different locations regarding a sensitive complex topic. Therefore he should choose the communication medium highest in information richness which would be a:______
a. Voice mail message.
b. Group email.
c. Videoconference.
d. Recorded presentation.
On July 1, 20Y7, Pat Glenn established Half Moon Realty. Pat completed the following transactions during the month of July:
A. Opened a business bank account with a deposit of $25,000 from personal funds.
B. Purchased office supplies on account, $1,850.
C. Paid creditor on account, $1,200.
D. Earned sales commissions, receiving cash, $41,500.
E. Paid rent on office and equipment for the month, $3,600.
F. Withdrew cash for personal use, $4,000.
G. Paid automobile expenses (including rental charge) for the month, $3,050, and miscellaneous expenses, $1,600.
H. Paid office salaries, $5,000.
I. Determined that the cost of supplies on hand was $950; therefore, the cost of supplies used was $900.
What would the Financial Statement look like?
Answer:
Explanation:
A) Debit cash 25,000 , credit capital 25,000
B)Credit Payable 1850 , Debit supplies 1850
C) Credit cash (1200), Debit payable (1200)
D) Debit cash 41,500 , credit sales commission 41,500
E)Credit cash (3600). debit rent 3,600
F)Credit cash ( 4000), debit drawings 4000
G)credit cash (4,650), debit automobile 3,050,miscellaneous 1600
H) Credit cash (5,000), debit salaries 5000
i)Credit supplies (900) debit supplies expense 900
Overall total
Cash = 25000-1200+41500-3600-4000=4650-5000 48,050
Supplies = 1850 -900 =950
Account payable = 1850-1200 =650
Capital = 25,000
Drawing =4000
Sales commission = 41,500
Salaries = 5,000
Rent = 3,600
Automobile expenses =3050
Miscellaneous expenses =1600
Supplies expenses = 900
Income statement
Revenue ( sales commission ) 41,500
Expenses
salaries 5,000
Rent 3,600
Supplies 900
Automobile 3,050
Miscellaneous 1,600
Total expenses 14,150
Gross profit 27,350
Statement of financial position
Assets
Cash 48,050
Supplies 950
Total 49,000
Liabilities
Account payable 650
Capital 25,000
Drawing (4000)
Total 21,650
Owners equity 27,350
Total liabilities and equities 49,000
Owners equity = ( sales commission - salaries - rent -supplies - automobile -miscellaneous )
One of the world's most-recognizable franchisers is McDonald's. Advantages of franchising in global markets include:
Answer: d. forgoing the development costs and risks associated with opening up a foreign market.
Explanation:
Franchising is a way of expanding a business by allowing another company to sell the products of the expanding company and pay them for it.
It works by the Expanding company (franchisor) providing their skills, technical know-how and allowing the franchisee to use their image rights to sell products.
This is a cheap way of expanding in foreign markets because the franchisor does not have to spend money starting up in that country and developing a business from scratch. It can simply license another company that is already there to sell for it thereby avoiding risks of setting up anew in a foreign market.
Consider Kodak's core competency before Fisher's arrival. As the market shifted from film to digital did the company's historical core competency still quality as a core competency? Did it pass the core competency test question(s)? If so, which one(s)?
a. Test 1
b. Test 2
c. Test 3
Answer: None of the three tests were passed as the market transitioned.
Explanation: one of the core competencies of Kodak were
1. Film was the basics of their critics products and services. As the market transitioned from the use of films for camera and devices to digital, Kodak refused or was reluctant to take the necessary risk to expand and forge beyond it current market and product to the digitalized market as a result suffered the consequence.
If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?
Answer:
Hello attached below is the complete question
D1 represents the demand curve reflecting private benefits ( c )
Explanation:
The effects of an externality is positive( shift of the demand curve to the right ) when the production of goods and service has a positive effect on the consumers ( people that are not involved in the production process ). this positive effect will lead to an increase in quantity demanded as well from consumers.
The curve ( D1 ) does not represent the social benefits for the consumers but represents the demand curve reflecting private benefits,
The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 8 years. The bond certificate indicates that the stated coupon rate for this bond is 8% and that the coupon payments are to be made semiannually. Assuming the appropriate YTM on the Sisyphean bond is 9.6%, then this bond will trade at
Answer:
this bond will trade at $912.05.
Explanation:
There is an Inverse relationship between the yield and the price of bond.
As the yield goes up, the price of bond goes down, that is trade at discount.Whereas, as the yield goes down, the price of bond goes up, that is trade at a premium.The Bond investment in Sisyphean Company is trading at a discount.
The Price of the Bond, PV can be determined as follows..
PV = ?
FV = $1,000
PMT = ($1,000 × 8%) ÷ 2 = $40
P/yr = 2
YTM = 9.6%
n = 8 × 2 = 16
Using a Financial Calculator, the Price of the Bond, PV is $912.05.
Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $175, 846, net annual cash flows $37, 300, and present value factor of cash inflows for 10 years 5.02 (rounded). (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45).)
Determine the net present value, and indicate whether the investment should be made?
Answer:
NPV = $11400
As the NPV from the project is positive, the investment should be made.
Explanation:
The NPV or net present value is an important metric that is used for project and investment evaluation. The NPV is the present value of the series of cash flows provided by the project less the initial cost incurred to undertake the project. NPV can be calculated as follows,
NPV = (Annual Cash Flow * Present value factor) - Initial cost
NPV = (37300 * 5.02) - 175846
NPV = $11400
As the NPV from the project is positive, the investment should be made.
TB MC Qu. 8-129 Dilly Farm Supply is located in a small ... Dilly Farm Supply is located in a small town in the rural west. Data regarding the store's operations follow: Sales are budgeted at $306,000 for November, $326,000 for December, and $226,000 for January. Collections are expected to be 70% in the month of sale and 30% in the month following the sale. The cost of goods sold is 75% of sales. The company desires to have an ending merchandise inventory at the end of each month equal to 80% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. Other monthly expenses to be paid in cash are $22,700. Monthly depreciation is $29,000. Ignore taxes.
Balance Sheet October 31
Assets:
Cash $32,000
Accounts receivable 82,500
Merchandise inventory 182,880
Property, plant and equipment, net of $624,000 accumulated depreciation 916,000
Total assets $1,213,380
Liabilities and Stockholders' Equity
Accounts payable $250,000
Common stock 751,000
Retained earnings 212,380
Total liabilities and stockholders' equity $1,213,380
Retained earnings at the end of December would be:_______
Answer:
retained earnings at December 31, 202x = $266,980
Explanation:
income statement for November and December:
Sales revenue $632,000
COGS ($474,000)
Gross profit $158,000
Operating expenses:
Depreciation ($58,000)
Other expenses ($45,400)
Net income $54,600
retained earnings = previous balance + net income - dividends paid = $212,380 + $54,600 - $0 = $266,980
Cantor Corporation acquired a manufacturing facility on four acres of land for a lump-sum price of $9,000,000. The building included used but functional equipment. According to independent appraisals, the fair values were $4,500,000, $3,000,000, and $2,500,000 for the building, land, and equipment, respectively. The initial values of the building, land, and equipment would be:
Answer:
Initial value of building = $4,050,000
Initial value of land = $2,700,000
Initial value of equipment = $2,250,000
Explanation:
The fair value of an asset refers to a unbiased estimate of the likely market price of the asset.
The initial value of a fixed asset refers to the amount of money that spent to acquire or create the asset.
The initial value of each asset from a group of asset can be calculated using the following formula:
Initial value of an asset = Lump-sum price * (FVA / TFV) ............ (1)
Where, from the questio;
Lump-sum price = $9,000,000
FVA = Fair value of a particular asset. From the question, we have:
Building fair value = $4,500,000
Land fair value = $3,000,000
Land fair value = $2,500,000
TFV =Total fair value = Building fair value + Land fair value + Land fair value = $4,500,000 + $3,000,000 + $2,500,000 = $10,000,000
Substituting the values into equation (1), we can determine the initial value of each asset as follows:
Initial value of building = $9,000,000 * ($4,500,000 / $10,000,000) = $9,000,000 * 0.45 = $4,050,000
Initial value of land = $9,000,000 * ($3,000,000 / $10,000,000) = $9,000,000 * 0.30 = $2,700,000
Initial value of equipment = $9,000,000 * ($2,500,000 / $10,000,000) = $9,000,000 * 0.25 = $2,250,000
Digby's turnover rate for this year is 6.33%. This rate is projected to remain the same next year and no further downsizing will occur from automating. What would the total recruiting cost be for Digby, assuming it spends the same amount extra above the $1,000 recruiting base as they did this year?
Answer:
Total recruitment cost = $316.5
Explanation:
Note:
Given question is incomplete,
The number of employees = 5,000
Given:
Turnover rate for this year = 6.33%
Find:
Total recruitment cost
Computation:
Total recruitment cost = Turnover rate for this year × The number of employees
Total recruitment cost = 5,000 × 6.33%
Total recruitment cost = $316.5
The total recruiting cost will be $316.5 for Digby.
Given information
Assumed the number of employees is 5,000
Turnover rate for this year = 6.33%
Total recruitment cost = Turnover rate for this year * The number of employees
Total recruitment cost = 5,000 * 6.33%
Total recruitment cost = $316.5
Therefore, the total recruiting cost will be $316.5 for Digby.
See similar solution here
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Archie Co. purchased a framing machine for $60,000 on January 1, 2021. The machine is expected to have a four-year life, with a residual value of $5,000 at the end of four years. Using the sum-of-the years'-digits method, depreciation for 2022 and book value at December 31, 2022, would be: (Do not round intermediate calculations.)
Answer:
$16,500
Explanation:
Depreciation is a method used in expensing the cost of an asset.
sum-of-the years'-digits method = (useful life remaining / sum of years) x (cost of asset - residual value)
sum of the years = 1 + 2 + 3 + 4 = 10
(3 / 10) x ($60,000 - $5,000) = $16,500
"What action is the Federal Reserve MOST likely to take if it is worried about increasing inflation due to extremely rapid economic expansion?"
Answer: Increase reserve requirements
Explanation:
Reserve requirements refer to the proportion of deposits that banks are required to leave with the Fed for safekeeping and the protections of depositors.
This amount reduces the amount of money that the banks can give out as loans and so is quite useful in monetary policy.
If the Fed is worried about increasing inflation due to extremely rapid economic expansion, the way to rein this in is to embark on a contractionary monetary policy.
One way to do so is to increase the reserve requirement which would mean that banks have to hold more money. Should this happen then the money supply in the economy would decrease which would ideally decrease inflation and reduce the funds available for both investment and consumption which would lead to a decrease in economic activity as well.
Which of the following is most correct according to the CAPM: Group of answer choices A stock’s risk premium depends on its beta. Company specific risk is the most relevant risk. A stock’s risk premium depends on its firm-specific risk. There is a linear and positive relationship between a stock’s total risk and its required return.
Answer: A stock’s risk premium depends on its beta
Explanation:
The Capital Asset Pricing Model (CAPM) helps in knowing the relationship that exists between the systematic risk and return whihc an individual or a firm expects for an assets, such as stocks.
It should be noted that the beta influences the return. Therefore, stock’s risk premium depends on its beta.
Carr Company is considering two capital investment proposals. Estimates regarding each project are provided below: Project Soup Project Nuts Initial investment $400,000 $600,000 Annual net income 30,000 46,000 Net annual cash inflow 110,000 146,000 Estimated useful life 5 years 6 years Salvage value -0- -0- The company requires a 10% rate of return on all new investments. Present Value of an Annuity of 1 Periods 9% 10% 11% 12% 5 3.890 3.791 3.696 3.605 6 4.486 4.355 4.231 4.111 "The net present value for Project Nuts" is Group of answer choices
Answer:
NPV = $35,868.06
Explanation:
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV for Project Nuts
NPV can be calculated using a financial calculator
Cash flow in year 0 = $-600,000
Cash flow each year from year 1 to 6 = 146,000
I = 10%
NPV = $35,868.06
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share, 200 shares of Lowes (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share. Suppose over the next year Ball has a return of %, Lowes has a return of %, and Abbott Labs has a return of . The return on your portfolio over the year is:
Answer:
3.8%
Explanation:
There are some important parts missing:
Suppose over the next year Ball has a return of 12.5%, Lowes has a return of 21%, and Abbott Labs has a return of -10%.
We must first determine the weight of each stock in the portfolio:
ABT = ($50 x 200) / $20,000 = 50%LOW = ($30 x 200) / $20,000 = 30%BLL = ($40 x 100) / $20,000 = 20%the expected return of the portfolio = (ABT x return) + (LOW x return) + (BLL x return) = (50% x -0.1) + (30% x 0.21) + (20% x .125) = -5% + 6.3% + 2.5% = 3.8%
To avoid having a voidable contract, all 'time is of the essence' deadlines set by the contract must be met:________
a. within 24 hours of the stated deadline.
b. within 48 hours of the stated deadline.
Answer:
None of the choices are needed
Explanation:
As we know that
The contract is an agreement between two parties who are eligible and enforceable by law
The voidable contract is an agreement that is not unenforceable by law due to various reasons like - party failure to complete the contract on time, fraud, misrepresentation, etc
So in the case of the voidable contract, no grace period is applicable neither 24 hours nor 48 hours as if there is a deadline so the same should be considered
A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives, A and B, have been identified, and the associated costs and revenues have been estimated. Annual fixed costs would be $38,000 for A and $31,000 for B; variable costs per unit would be $7 for A and $11 for B; and revenue per unit would be $19.
a. Determine each alternative’s break-even point in units. (Round your answer to the nearest whole amount.)
QBEP,A units
QBEP,B units
b. At what volume of output would the two alternatives yield the same profit? (Round your answer to the nearest whole amount.)
c. If expected annual demand is 10,000 units, which alternative would yield the higher profit?
Answer:
Instructions are below.
Explanation:
Giving the following information:
Machine A:
Fixed costs= $38,000
Unitary cost= $7
Machine B:
Fixed costs= $31,000
Unitary cost= $11
Revenue per unit= $19
To calculate the break-even point in units, we need to use the following formula:
Break-even point in units= fixed costs/ contribution margin per unit
Machine A:
Break-even point in units= 38,000 / (19 - 7)
Break-even point in units= 3,167
Machine B:
Break-even point in units= 31,000 / (19 - 11)
Break-even point in units= 3,875
Now, we need to determine the indifference point:
Machine A= 38,000 + 7x
Machine B= 31,000 + 11x
x= number of units
We will equal both formulas and isolate x:
38,000 + 7x = 31,000 + 11x
7,000 = 4x
1,750=x
Indifference point= 1,750 units
Finally, the total cost for 10,000 units:
Machine A= 38,000 + 7*10,000= $108,000
Machine B= 31,000 + 11*10,000= $141,000
ABC Corporation has the following information: Total market value of a company’s stock: $650 million Total market value of the company’s debt: $150 million Cost of Equity: 10% Cost of Debt: 8% Corporate tax rate is 35 percent What is the WACC of ABC Corporation?
Answer:
WACC of ABC Corporation is 91%
Explanation:
WACC = Kd * (1+T) * Debt/Debt+Equity + Ke * Debt/Equity
Kd = Cost of debt
T = Corporate tax rate
WACC = 0.08*(1-0.35)*(150m/150m+650m) + 0.10*(650m/150m+650m)
WACC = 0.08 *0.65*0.1875 + 0.10*0.8125
WACC = 0.00975 + 0.08125
WACC = 0.091
WACC = 91%
Therefore, the WACC of ABC Corporation is 91%
A year ago, you purchased 300 shares of Stellar Wood Products, Inc. stock at a price of $8.62 per share. The stock pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $4.80 per share. What is your total dollar return on this investment
Answer:
Total Dollar Return -$1,116
Explanation:
Calculation for the total dollar return on this investment
First step is to find the Total Selling Price using this formula
Total Selling Price= Shares purchased *Price per share sold
Let plug in the
Total Selling Price= 300*4.80
Total Selling Price= $1,440
The next step is to calculate for the total dollar return the investment using this formula
Total Dollar Return = Selling Price +Annual Dividend - Purchase Price
Let plug in the formula
Total Dollar Return = $1,440 + (300 shares ×$0.10 per share) - (300 shares *$8.62 per share)
Total Dollar Return=$1,440+$30-$2,586
Total Dollar Return = -$1,116
Therefore the total dollar return on this investment will be -$1,116
The statement "Automobiles manufactured by this brand are the safest" is an example of the _____ component of attitude.
Answer:
cognitions
Explanation:
The cognitions component of attitude refers to the opinion a person has about an object. According to this, the answer is that the statement "Automobiles manufactured by this brand are the safest" is an example of the cognitions component of attitude as the sentence shows the belief the person has about that brand.
Consider the production function
Y = (K)^1/2 (N)^1/2
where Y is output, K is capital, and N is the number of workers (abor)
When K = 46 and N = 82, output is ________ (Round your response to two decimal places.)
If both capital and labor double, given the production function, output will _________.
If output doubles when inputs double, the production function will be characterized by:_________.
A. constant returns to scale
B. decreasing returns to scale.
C. increasing returns to scale.
D. none of the above.
Answer:
Requirement 1: Production Output will be 61.42 Units.
Requirement 2: Production Output will be doubled.
Requirement 3: Constant Returns to Scale
Explanation:
Requirement 1:
The output at K=46 and N=82 is given as under:
Y = (46)^1/2 * (82)^1/2
Y = 61.42 Units
Requirement 2:
Now if we double "K" and "N" then:
Y' = (2K)^1/2 * (2N)^1/2
Y' = 2 [(K)^1/2 * (N)^1/2]
Y' = 2Y
This means that the output will be doubled.
Requirement 3:
Option A. Constant Returns to Scale
Constant returns to scale occurs when the increase in the input causes same proportional increase in the production output. Such same proportional increase in the production output is referred to as Constant Returns to Scale.
In the given scenario, as the production output doubles with the doubling of input which was seen in the requirement above. We can say that the production function is characterized by Constant Returns to Scale.
Which of the following policies often contains clauses that permit a social networking operator to collect and store data on users or even share it with third parties?
1) Terms of Trade policy
2) Terms of Use policy
3) Terms of Endearment policy
4) Terms of Retention policy
Answer: 2) Terms of Use policy
Explanation:
Terms of service are a contract or agreement between the user of a website or in this case a social networking operator and the social networking operator itself. This agreement is meant to govern the terms of the relationship between the 2 parties in terms of what will be expected of both, i.e, their rights and responsibilities.
On the side of the social networking operator, one of the rights usually listed is one stating that the operator can collect and store data on users or even share it with third parties and so it is important to read the terms of use policy as best you can when you can.
Pressure tactics lead the other party to realize that the status quo is acceptable, and they make explicit the costs of not negotiating.
a. True
b. Fasle
Answer: b. False
Explanation:
Pressure tactics is described as to pressurize the other party to realize that the status quo is unacceptable, and they make the costs of not negotiating very explicit.
Pressure tactic is one of the influence tactics which focuses on using power by demanding compliance or using threats.
Hence, the given statement is false.
Hughey Co. as lessee records a capital lease of machinery on January 1, 2011. The seven annual lease payments of $350,000 are made at the end of each year. The present value of the lease payments at 10% is $1,704,000. Hughey uses the effective-interest method of amortization and sum-of-the-years'-digits depreciation (no residual value). Round to the nearest dollar.
a) Prepare an amortization table for 2 011 and 2012.
b) Prepare all of Hughey's journal entries for 2011.
Answer:
Both requirements are solved below
Explanation:
An amortization table can be made as follows
DATA
Lease term = 7years
annual lease payments = $350,0000
Present value of the leases payment = $1,704,000
Implicit interest rate = 10%
Requirement A Amortization table for 2011 and 2012
Date Annual payment Effective decreased Balance
interest liability $1,704,000
12/31/11 $350,000 $170,400 $179,600 $1524,400
12/31/12 $350,000 $152,440 $197,560 $1,326,840
Requirement B journal entries for 2011
January 1
Entry
DEBIT CREDIT
Leased machinery $1,704,000
Lease liability $1,704,000
December 31
Entry
DEBIT CREDIT
Interest expense $170,400
Lease liability $179,600
Cash $350,000
December 31
Entry
DEBIT CREDIT
Depreciation expense(w) $426,000
Accumulated depreciation $426,000
Working
Sum of the years = (7+6+5+4+3+2+1) = 28
Cost = $1,704,000
Residual value = $0
Estimated life = 7years
Depreciation expense = $1,704,000 x 7/28
Depreciation expense = $426,000
On the first day of the fiscal year, a company issues a $8,800,000, 7%, 10-year bond that pays semiannual interest of $308,000 ($8,800,000 × 7% × ½), receiving cash of $7,655,303. Required:Journalize the first interest payment and the amortization of the related bond discount.
Answer and Explanation:
The journal entry is shown below:
Interest expense $403,391
To Cash $308,000
To Discount on note payable $95,391
{($8,800,000 - $7,655,303) ÷ 12}
Here we debited the interest expense as it increased the expenses and credited the cash as it decreased the assets and credited the discount on note payable
Consumer concern with the standards and believability of advertising may have spread around the world more swiftly than have many marketing techniques due to
Answer:
False advertising
Explanation:
False advertising refers to that advertising in which the misleading information is passed to the final consumers so that the company could earn more and more profits as there is one motive i.e. to increase sales as much the company wants
Therefore according to the given situation, the advertising spread around the world quickly due to the false advertising.
A short margin account with the only position being 100 shares of ABC stock, shows the following:
Credit Balance: $18,000
Short Mkt Value: $12,000
Equity: $6,000
If ABC pays a dividend of $2.00 per share, the result will be an adjusted:__________
Answer:
1.1'00
Explanation:
Zycon has produced 10,000 units of partially finished Product A. These units cost $20,000 to produce, and they can be sold to another manufacturer for $12,000. Instead, Zycon can process the units further and produce finished Products X, Y, and Z. Processing further will cost an additional $16,000 and will yield total revenues of $30,000.Required:Identify weather the tem is relevant or irrelevant to the sew or process further decision.
Answer:
1. $20,000 cost already incurred to a produce. - Irrelevant
This cost has already been incurred in the initial production and as such are classified as sunk costs. Sunk costs are not relevant to the decision on whether to sell or process the product further.
b. $12,000 selling price - Relevant
As this amount relates to the selling price were the product not to be processed further, it is relevant to the sell or process the products further decision.
c. $16,000 additional processing costs - Relevant
This is the incremental cost should the product be processed further and so is relevant to the decision.
d. $30,000 revenues from processing further. - Relevant.
As the total revenue that could be realized if the product is processed further, this is very relevant to the decision on whether to process further or sell.
A market situation in which a large number of firms produce similar but not identical products is called
Answer:
A market situation in which a large number of firms produce similar but not identical products is called perfectly competitive.
Explanation:
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,040. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,460 per year for four years, with no additional costs. Prepare a differential analysis dated December 3, to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter "0". Use a minus sign to indicate a loss.
Answer:
Sloan Corporation
Differential Analysis:
Cost of Alternative 1 (Lease) - $1,460.00
Cost of Alternative 2 (Buy) = $1,332.50
Choose Alternative 2, purchase the equipment, and there will be a cost saving of $127.50 per year.
Explanation:
Buy Decision:
Cost of purchase = $3,040
Freight-in 610
Total cost $3,650
Annual equipment cost = $912.50
Annual Repair cost = 420.00
Total annual cost to buy = $1,332.50
Cost of Lease per year = $1,460
Sloan Corporation's differential analysis of the lease or buy decision shows that it would be more profitable to purchase the equipment than to lease. With a purchase decision, the cost savings will be $127.50 per year. By undertaking this differential analysis, Sloan Corporation is able to determine the alternative that will serve its best interest, especially in terms of cost.
