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D Ltd is trying to decide whether to lease or to buy a machine expected to have a useful life of 6 years. The machine will cost $94,000 to buy, a sum which D Ltd would have to borrow, or it could be leased for lease payments of $27,000 per year for 6 years, payable in arrears. D Ltd pays corporation tax at 30% one year in arrears and can claim capital allowances on a 25% reducing balance basis. The company’s pre-tax cost of borrowing is 10%.
Required: Calculate total PV of leasing cost. TO NEAREST $
Sales volumes are expected to be either 21089 units with 0.4 probability or they are expected to be 26252 units. Price will either be $9 (0.3 probability) or else $14. Margins are expected to be 25.54% or 36.02% of sales with an even chance of each.
What is the expected total cost?
Investment new asset will cost $108 with a useful life of 4 years. The asset will be depreciated using RBM. At end of its useful life the assets will scrapped for $23.
The can claim 25% capital allowance and pays 30% tax in arrears. Company’s cost of capital 11%.
ALL VALUES ARE IN $’000
CALCULATE THE PV OF BALANCING ALLOWANCE OR CHARGE THAT WILL RELEVANT FOR NPV COMPUTATION?
ANSWER IN $’000 IN 2 DECIMAL POINTS
PD Co is deciding whether to replace its delivery vans every year or every other year. The initial cost of a van is $19310. Maintenance costs would be nil in the first year, and $5008 at the end of the second year and increase at 8% p.a thereafter.
Second-hand value would fall from $9302 to $8208 if it held on to the van for two years instead of just one. It is estimated in subsequent years, that the value will be at 78% of previous year. PD Co’s cost of capital is 10%.
What is the equivalent annual cost if replaced every 4 years (‘EAC’)?
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