80.2K

Verified Solution

Link Copied!

The provided information is all that is given in the question

You are about to open your own construction company and are considering purchasing a backhoe loader to perform your work. In order to do so, you need to evaluate the cost of purchasing against the costs of renting or leasing For a purchasing a backhoe loader, the following information is available: cost is $100,000, the estimated resale value after five years is $40,000, down payment is $20,000, your loan terms are: $80,000, 12%, 36 months = $2657.20/month, with interest payments of: Interest (5) 8333 5346 1979 For a leasing the backhoe loader, the term of lease will be of 5 years, with lease payments of $1850/month and initial payment of 3 months in advance for a renting the backhoe loader, the rental rate is $3375/month with a renting period of 5 years, month to month. Part A: Why would you want to rent equipment as compared to purchasing it? What are the differences of leasing equipment as compared to renting it? Part B: Evaluate the after-tax cash flow and the backhoe present value by analyzing the cost of renting, leasing, or purchasing it for your company. If needed, assume the following: marginal tax rate is 46%, after-tax rate of return is 7%, planned equipment use is 2000/year for 5 years, and present value factors (i=7%) are: PE 0.967 0.904 0.845 0.790 0.738 .713 End of 5 0 You are about to open your own construction company and are considering purchasing a backhoe loader to perform your work. In order to do so, you need to evaluate the cost of purchasing against the costs of renting or leasing For a purchasing a backhoe loader, the following information is available: cost is $100,000, the estimated resale value after five years is $40,000, down payment is $20,000, your loan terms are: $80,000, 12%, 36 months = $2657.20/month, with interest payments of: Interest (5) 8333 5346 1979 For a leasing the backhoe loader, the term of lease will be of 5 years, with lease payments of $1850/month and initial payment of 3 months in advance for a renting the backhoe loader, the rental rate is $3375/month with a renting period of 5 years, month to month. Part A: Why would you want to rent equipment as compared to purchasing it? What are the differences of leasing equipment as compared to renting it? Part B: Evaluate the after-tax cash flow and the backhoe present value by analyzing the cost of renting, leasing, or purchasing it for your company. If needed, assume the following: marginal tax rate is 46%, after-tax rate of return is 7%, planned equipment use is 2000/year for 5 years, and present value factors (i=7%) are: PE 0.967 0.904 0.845 0.790 0.738 .713 End of 5 0

Answer & Explanation Solved by verified expert

See Answer