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To determine the annual payment acceptable to the Wildcat Oil Company (Wina), we need to compare the lease and buying options and calculate the financial implications.
- Leasing Option: The system cost is $8.9 million, and the lease period is five years. At the end of the lease, there will be an after-tax residual value of $1,880,000. The tax rate is 24%, and the firm can borrow at 6%.
To calculate the annual payment, we need to find the present value of all cash flows associated with the lease: PV = Lease cost + Present value of the residual value
The lease cost is the present value of an annuity due: Lease cost = PMT * (1 - (1 + r)^(-n))/r Where PMT is the annual payment, r is the discount rate, and n is the number of periods.
The present value of the residual value can be calculated as: PV (residual value) = Residual value / (1 + r)^n
- Buying Option: If the company decides to buy the system instead of leasing, it needs to consider the tax savings from depreciation: Tax savings = Depreciation expense * Tax rate
The depreciation expense per year is calculated as: Depreciation expense = System cost / Lease period
The tax savings will reduce the after-tax cost of owning the system.
To calculate the after-tax cost of owning the system, we need to discount the system cost and the tax savings: PV (system cost) = System cost - Tax savings * (1 - 1 / (1 + r)^n) / r
Finally, we compare the present value costs of the lease and buying options to find the annual payment acceptable to Wina.
Please note that some values were not provided in the question, such as the rate to calculate depreciation or the residual value at the end of the lease. If you could provide those values, I would be able to give you a more accurate answer.
Bajrangi Bhai
Wiki User
∙ 15y agoProblem 21.3 Super Sonics Entertainment is considering borrowing money at 11 percent and purchasing a machine that costs $350,000. The machine will be depreciated over five years by the straightline method and will be worthless in five years. Super Sonics can lease the machine with the year-end payments of $94,200. The corporate tax rate is 35 percent. Should Super Sonics buy or lease?
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Is cash flow the same as income?
No a Profit & Loss statement will tell you net imcone, which is not the same as cash flow. Cash Flow is the result of a sources and uses of funds statement which is often a better indication of how a buisness is performning that the P&L.
What are the objectives of cash flow statement?
To know the liquidity position of a firm. To know the principle source of cash. To know the uses of cash. To be used widely by banks,financial institutions and other credits granting institutions for judging repayment capacity of a firm. To analyse inflow and outflow of cash.
What is cash flow statement?
Considering what is cash flows statement? This statement is one of the three main financial statements any business has to prepare, i.e. balance sheet, income statement and cash flows statement. Cash flows statement indicates what are the sources from which business receives cash and what are the main uses of cash. Statement of cash flows is a very important, as it indicates whether the business is able to generate cash from it's main activities, whether there is no excessive borrowing, how the business uses cash generated. The other financial statements (income statement and balance sheet) do not provide such information. Also knowing what is cash flows statementallows you to compare net profit reflected in the income statement and change in cash for the same period and estimate quality of net profit and determine whether the business has enough cash. In certain cases it might happen that based on the income statement the business is profitable, however it has no cash. More detailed information can be found on http://free-accounting-tutor.com/
What is fund flow statement how it differ from such flow statement explain the main sources and uses of funds?
Fund flow Statement helps to measure the different sources of funds. Funds Flow Statement analyses the Sources and Application of Funds while others don't.
What is a working capital statement?
WORKING CAPITAL STATEMENT (WCS) is part of the financial statements' "Statements of Cash Flows or Changes in Financial Position." The WCS normally includes sections covering: Sources of Working Capital, Uses of Working Capital, and Working Capital Changes.
What is the difference between fund flow statement and cash flow statement?
nothing both r similarAlternate answer:The fund flow statement shows the sources and uses of working capital. Working capital equals current assets minus current liabilities (usually excluding the short term portion of interest bearing debt). The cash flow statement explains the change in cash (and cash equivalents), by showing the change in cash as a result of operating, investing and financing activities. The sum of these equal the change in cash over the period.An important difference is that working capital is broader than 'just' cash (and cash equivalents). For example, working capital can increase even though cash is decreasing (for example when the increase in inventory and accounts receivables is larger than the cash decline).Nowadays companies provide a cash flow statement.
Does the statement of changes in financial position derives its information from the income statement?
No, the statement of changes in financial position does not derive its information from the income statement. The statement of changes in financial position shows the sources and uses of funds during a specific period, including cash flow from operating, investing, and financing activities. It provides a different perspective than the income statement, which focuses on revenues, expenses, and net income.
What is the scope of cash flow statement?
Scope Statement of Cash Flows1. Consolidated cash flow is a financial statement that presents information about the company's cash receipts and disbursements during the accounting period.2. The purpose of cash flow statement is to provide information on sources and uses of cash and cash equivalents during the period of accounting and cash reconciliation at the beginning of the period with cash at the end of the period plus the cash equivalent balances.3. The general form of the cash flow statement shows cash receipts and disbursements are divided into three categories, namely: cash flow from operating activities, cash flows from investing activities and cash flows arising from financing activities.4. Operating activities are the principal revenue-producing activities of the company (principal revenue producing activities) and other activities that are not investing activities and financing activities. Cash flows from operating activities can be reported with the use of two methods, either directly or indirectly.5. Investment activity is the acquisition and disposal of long-term assets and other investments that do not include cash equivalents.
What is a a working capital?
WORKING CAPITAL STATEMENT (WCS) is part of the financial statements' "Statements of Cash Flows or Changes in Financial Position." The WCS normally includes sections covering: Sources of Working Capital, Uses of Working Capital, and Working Capital Changes.
What are the uses of the protracter?
To measure and construct angles
What is uses statement?
There is no "uses" statement in C. Please restate the question.
What are the Statements of changes in financial position?
Changes in financial position Sources and uses of funds provided from operations that alter a company's cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.
