T2. Assume you have just accepted a job that requires you to do a lot of driving. Because your current car is on its "last leg,"you have decided to purchase an automobile. You estimate that you will drive 20,000 miles each year. Because you don'tlike to deal with major car repairs, you will trade in the car when it reaches 60,000 miles (you will hold the car no morethan three years).You have found two cars that you are considering. One is a new car (A), and you can purchase it for $27,000; it has a$6,000 residual value. The other is a late-model used car (B). The used car has 20,000 miles on it, but it is in excellentcondition. The price of this used car is $12,000 and has a $2,000 residual value.Using the information presented (do not take into consideration which car is cheaper or the car's residual value, that isnot the answer):What would be your depreciation cost per year for each car (using straight-line method)? Show your calculation in yourresponse.Which car would give you the highest deduction annually? Would it be A or B?What would be the entry to record the first year's depreciation for one of the cars (either A or B)? Show the entry.

To calculate the depreciation cost per year for each car, we can use the straight-line method, which…

Answered: Assume you have just accepted a job…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Imagine that you are trying to evaluate the economics of purchasing a condominium to live in during college rather than renting an appartment. If you buy the condo, during each of the next 4 years you will have to pay property taxes and maintenance expeditures of about $6,000 per year, but you will avoid paying rent of $10,000 per year. When you graduate 4 years from now, you expect to sell the condo for $125,000. If you buy the condo, you will use money you have saved and invested earning a 6% annual return. Assume that all cash flows (rent, maintenance, etc.) would occur at the end of each year. a. Identify the cash flows, their timing, and the required return applicable to valuing the condo. The amount of the property taxes and maintenance expenditures, CF, associated with the purchase of the condo is $_________. b. What is the maximum price you pay for the condo? Explain.
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $29,500, and Harold expects to spend about $800 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $11,700. Alternatively. Harold could lease the same vehicle for five years at a cost of $3.835 per year, including maintenance. Assume a discount rate of 10 percent. Required: 1. Calculate the net present value of Harold's options. (Euture Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.) NPV Purchase Option Lease Option
imagine that you are to evaluate the economics of purchasing a condominium to live in during college rather than renting an apartment. if you buy the condo , during each of the next 4 years you will have to pay property taxes and maintanance expenditure of about $6,000 pe year, but you will avoid paying rent of $10,000 per year. when you graduate 4 years from now, you expect to sell the condo for $125,000 after taxes. if you buy the condo, you will use money you have saved that is currently invested and earning a 4% annual after tax rate of return. assume for simplicity that all cash flows (rent,maintainance, etc) would occur at the end of each year . a. draw a time line showing the cash flows,their timing, and the required return applicable to valuing the condo. b. what is the maximum price you would be willing to pay to acquire the condo ? explain .
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $28,000, and Harold expects to spend about $650 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $11,100. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,640 per year, including maintenance. Assume a discount rate of 10 percent. Required: 1. Calculate the net present value of Harold's options. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.) Purchase Option Lease Option NPV
A used car that currently costs $25,000 will have a market value of $8,000 in four years. As a student, you cannot afford to pay $25,000, but you want to have a car while you are going to university for the next four years. Your father agrees to lend you $25,000 on the condition that you pay him $300 at the end of every month for the next four years and $25,000 at the end of the four years. The car dealer provides financing facilities, and you are qualified to get a lease for which you will have to make monthly, end-of-month payments of $650 for 48 months. Which option will leave you better off, assuming your opportunity cost is 6 percent?
You are the owner of a small hardware store, and you are considering opening a gardening store in a vacant area in the back of the store. You estimate that it will cost you $ 50,000 to set up the store and that you will generate $ 10,000 in after-tax cash flows from the store for the life of the store (which is expected to be 10 years). The one concern you have is that you have limited parking; by opening the gardening store, you run the risk of not having enough parking for customers who shop at your store. You estimate that the lost sales from such an occurrence would amount of $ 3,000 a year and that your after-tax operating margin on sales at the hardware store is 40%. If your discount rate is 14%, would you open the gardening store?
You have been transferred to New Mexico for your post-graduate internship. You and your spouse have 2 children. You decide you need a home. The current owner of the home will sell it to you for $120,000, or you can rent it for $900 per month on a 1-year lease. You believe you could resell the home after 1 year for $130,000. Should you purchase the home or rent it?
Derek decides to buy a new car. The dealership offers him a choice of paying $518.00 per month for 5 years (with the first payment due next month) or paying some $28,412.00 today. He can borrow money from his bank to buy the car. What interest rate makes him indifferent between the two options? Submit
You currently don't have a car, but rent a car that's parked just outside your house whenever you need one. Your annual expenditure on rental cars is $2,600. You are now considering purchasing a car that would give you the same level of convenience as your current life style. The car costs $27,000 and can be sold for $5,000 after 10 years. You'd purchase the car with money from your savings account which always earns an interest rate of 6%. Assume that all cash flows occur at the end of each year (maybe because you drive much more around Thanksgiving and Christmas.
Your son has come to you for advice. He is about to enter college and has two options open to him. His first option is to study pharmacy. If he does this, his pharmacy study would cost him $30,000 a year for sevenyears. Having obtained this, he would work for two years to save money for graduate school: in the first year he would earn $40,000, in the second year he would earn $50,000. He would then go to geta MBA, which will cost $45,000 a year for two years. After that he will be fully qualified and can earn $100,000 per year for 30 years.His other alternative is to study accounting. If he does this, he would pay $35,000 a year for four years and then he would earn $50,000 per year for 37years. The effort involved in the two careers is the same, so he isonly interested in the earnings the jobs. provide. All earnings and costs are paid at the end of the year. What advice would you give him,if the market interest rate is 6percent? (Note: This question is worth more)a.Tell him to choose…
Your son has come to you for advice. He is about to enter college and has two options open to him. His first option is to study pharmacy. If he does this, his pharmacy study would cost him $30,000 a year for sevenyears. Having obtained this, he would work for two years to save money for graduate school: in the first year he would earn $40,000, in the second year he would earn $50,000. He would then go to geta MBA, which will cost $45,000 a year for two years. After that he will be fully qualified and can earn $100,000 per year for 30 years.His other alternative is to study accounting. If he does this, he would pay $35,000 a year for four years and then he would earn $50,000 per year for 37years. The effort involved in the two careers is the same, so he isonly interested in the earnings the jobs. provide. All earnings and costs are paid at the end of the year. What advice would you give him,if the market interest rate is 6percent?
Your brother owns a commercial electrical company. A friend of his is retiring and has offered to sell her electrical maintenance contracts to him.She has given you her speadsheets and you have estimated that you would earn a cash flow of $2098 per month after expenses.Your financial advisor has estimated that you may be able to sell the company for $480556 in 4 years. Based onthe risk of this investment, you require a return of 8.22%. What is the most you should be willing to pay for the contracts today?

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